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Doing Business
and Investing
in Brazil

Doing Business
and Investing in


Information Guide Series

Doing Business and Investing in Brazil is a publication of PricewaterhouseCoopers
ITS - International Tax Services Group and is published by PricewaterhouseCoopers Auditores

PricewaterhouseCoopers - Brazil Information and Documentation Center

P946d Doing business and investing in Brazil / PricewaterhouseCoopers. - So Paulo:
252 p.
Contents: Brazil: a profile; Business environment; Foreign trade and investment
opportunities; Investment incentives; Restriction on foreign investment and investors;
Regulatory environment; Banking and finance; Exporting to Brazil; Business entities;
Labor relations and social security; Audit requirements and practices; Accounting
principles and practices; Tax system; Tax administration; Corporate taxation; Taxation
of foreign corporations; Taxation of shareholders or quotaholders; Taxation of foreign
operations; Consortiums and joint ventures; Taxation of individuals; Taxation of trusts
and estates; Indirect taxes; Tax treaties.
The information contained in this guide is based on data and regulations in effect on
January 2010

1. Capital (Economics). 2. Foreign investment Brazil. I. Title. II Appendix.

CDD 332.6730981 I

This Guide on Brazil supersedes the Guide dated January 2005.

Any reader who would like a more detailed discussion of the subjects dealt with
herein is cordially invited to contact a partner in any of our offices.

2010 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the

network of member firms of PricewaterhouseCoopers International Limited, each of which is a
separate and independent legal entity.

May, 2010

Doing Business and

Investing in Brazil

I. Investment climate
II. Doing business
III. Audit and accounting
IV. Taxation

di Pereira

I am delighted to present our Doing Business in Brazil 2010 edition.
The objective of this publication is to provide an informative and easily
understandable overview of Brazils business landscape, helping make it
easier to understand the Brazilian market and economy.
Brazil is one of the most promising emerging markets in the world.
The country has overcome the recent turbulent international economic
crisis and returned as a stronger and more attractive global player. A
higher degree of diversification of our economy and a broader selection
of trading partners, coupled with tightly regulated financial systems,
were key to successfully mitigating the worst effects of the recent crisis.
This was the result of nearly two decades of political and currency
stability, tight fiscal discipline, increasing international reserves, solid
macroeconomic indicators and a fast expanding internal consumer
The current economic climate alongside the governments aggressive
infrastructure plans and increasing expectation around investment
opportunities linked to the discovery of the pre-salt oil fields attracts world
attention to our country. This event marked an important moment for the
Brazilian oil industry, because recent discoveries in the world oil scene
have been rare. Also as the global appetite for commodities continues
to grow and agribusiness gains momentum in the international picture,
especially with biofuels, highlights even more our presence on the world
stage as a relevant business destination. Not to mention, to the upcoming
soccer World Cup that will be held in 2014 and Olympic Games, in 2016.
The purpose of this publication is to provide an introduction to the major
business and legal issues to be considered by foreign companies in
establishing business operations in Brazil. The discussion under each
heading is not intended to be an exhaustive analysis but rather to provide
general observations and guidance to the many questions we have
encountered from clients. Particular businesses or industries may also
be subject to specific legal requirements not referred to in this guide. In
addition, certain projects may require specialist advice and appropriate
accounting and legal advice from one or more of our dedicated teams.
PricewaterhouseCoopers professionals are available for further
information on the matters covered in this publication and on our
services, designed to ensure successful and profitable business in Brazil.

Fernando Alves
PricewaterhouseCoopers - Brazil

Table of Contents

Table of Contents



Chapter 1 |Brazil - A profile.................................. 12

Investor considerations........................................................13
Geography and climate........................................................13
Political system.....................................................................15
Legal system........................................................................16
Population and social patterns.............................................16
The Economy.......................................................................18
Tips for business visitors......................................................27

Chapter 2 | Business environment..................... 30

Investor considerations........................................................31
Industrial climate..................................................................31
Framework of industry..........................................................32
Aims of government policy...................................................32
Public/private sector cooperation.........................................34
Industrial/management relations..........................................34
Overseas trade relations......................................................35

Chapter 3 | Foreign trade and investment

opportunities......................................................... 36

Investor considerations........................................................37
Investment climate...............................................................37
Special investment opportunities..........................................38
Planning guide for foreign investors.....................................39


Chapter 4 | Investment incentives...................... 42

Investor considerations........................................................43
Investment policy..................................................................43
Tax concessions...................................................................43
Regional incentives..............................................................44
Industry incentives................................................................45
Fiscal incentive investments.................................................46
Special-use company incentives..........................................46
Free-trade zones..................................................................46
International financial-centre operations..............................46
Export incentives..................................................................47
Incentives to invest in other countries..................................47
Foreign-investment incentives and strategy.........................47

Table of Contents

Doing business

Chapter 5 | Restrictions on foreign

investment and investors.................................... 48

Investor considerations........................................................49
Regulatory climate................................................................49
Exchange controls................................................................50
Restrictions on foreign investment.......................................53
Policy trends.........................................................................54

Chapter 6 | Regulatory environment.................. 56

Investor considerations........................................................57
Regulation of business.........................................................57
Competition policy................................................................58
Securities markets................................................................59
Imports and exports..............................................................60
Consumer protection............................................................60
Pollution control....................................................................60
Patents, trademarks and copyrights.....................................61

Chapter 7............................................................... 62
Banking and finance............................................ 62

Investor considerations........................................................63
Banking and finance system................................................63
Specialised financial institutions...........................................67
Investment institutions..........................................................67
Financial markets.................................................................67
Sources of funds..................................................................68

Chapter 8 | Exporting to Brazil............................ 70

Tips for exporters..................................................................71

Import restrictions.................................................................71
Import duties.........................................................................72
Documentation procedures..................................................73
Customs and storage...........................................................73
Port of entry and inland transport.........................................74
Special Customs Schemes..................................................74
Other Tax Programmes ......................................................74
Anti-dumping measures.......................................................74
Local representation.............................................................74
Sources of information.........................................................75

Table of Contents

Doing business

Chapter 9 | Business entities.............................. 76

Business entity guide ..........................................................77

Corporate forms for business enterprises............................79
Foreign enterprise entities....................................................81
Limited-liability companies and partnerships........................95
Joint venture.........................................................................97
Branches of foreign companies............................................98
Mixed-capital companies......................................................99

Chapter 10 | Labor relations and

social security.................................................... 100

Investor considerations......................................................101
Industrial relations .............................................................101
Working conditions.............................................................104
Social security....................................................................108
Payroll costs.......................................................................110
Expatriate personnel in Brazil.............................................110

Audit and

Chapter 11 | Audit requirements and

practices.............................................................. 112

Investor considerations......................................................113
Statutory requirements.......................................................113
The accounting profession.................................................115
Auditing standards..............................................................117

Chapter 12 | Accounting principles

and practices...................................................... 118

Investor considerations......................................................119
Summary of the Accounting Practices adopted in Brazil....120
Mandatory adoption of the CPCs.......................................124

Table of Contents


Chapter 13 | Tax system..................................... 126

Investor considerations......................................................127
Principal taxes....................................................................127
Tax guarantees...................................................................128
Legislative framework.........................................................128
Income tax..........................................................................130
Capital taxation...................................................................132
International matters...........................................................133

Chapter 14 | Tax administration........................ 134

Investor considerations......................................................135
Administration of the tax system........................................135
Corporate taxpayers...........................................................136

Chapter 15 | Corporate taxation ....................... 140

Investor considerations .....................................................141

Corporate tax system.........................................................142
Inter-company transactions ...............................................143
Tax computation.................................................................157
Other taxes.........................................................................158
Branches versus subsidiaries.............................................159
Holding companies.............................................................159
Corporate tax planning strategies......................................160

Chapter 16 | Taxation of foreign

corporations........................................................ 162

Investor considerations......................................................163
Tax concepts......................................................................163
Branch operations..............................................................165
Income from subsidiaries...................................................165
Foreign portfolio investments.............................................167
International financial centres.............................................167

Chapter 17 | Taxation of shareholders or

quotaholders....................................................... 168

Investor considerations......................................................169
Local shareholders or quotaholders...................................169
Foreign shareholders or quotaholders...............................169
Interest on net equity..........................................................170

Table of Contents


Chapter 18 | Taxation of foreign operations.... 172

Investor considerations......................................................173
Taxation of foreign income.................................................173

Chapter 19 | Consortiums and joint ventures.. 174

Investor considerations......................................................175
Joint ventures.....................................................................176

Chapter 20 | Taxation of individuals................. 178

Tax planning for expatriates...............................................179

Territoriality and residence.................................................181
Special provisions..............................................................181
Gross income.....................................................................182
Double-tax relief.................................................................184
Tax computation.................................................................185
Other taxes.........................................................................185

Chapter 21| Taxation of trusts and estates...... 186


Chapter 22 | Indirect taxes................................. 188

Investor considerations......................................................189
Federal indirect taxes.........................................................189
State indirect taxes.............................................................192
Municipal indirect taxes......................................................193

Chapter 23 | Tax treaties.................................... 194

Tax treaty policy..................................................................195

Withholding taxes...............................................................195
Permanent establishment...................................................196
Other articles......................................................................196
Elimination of double taxation............................................196
Exchange of information.....................................................196
Competent authority/Mutual agreement.............................196


Table of Contents


Appendix I | Corporate income tax & Social

contribution rates.................................................. 198
Appendix II | Tax depreciation rates..................... 200
Appendix III | Corporate tax calculation................ 202
Appendix IV | Withholding taxes........................... 206
Appendix V | Tax treaties...................................... 210
Appendix VI | Individual tax rates......................... 214
Appendix VII | Personal allowances
and deductions..................................................... 216
Appendix VIII | Individual tax calculation.............. 218

Table of Contents



Appendix IX | Tax on foreigners working

in Brazil................................................................. 222
Appendix X | Wealth tax....................................... 224
Appendix XI | Estate, inheritance and
gift tax rates.......................................................... 226
Appendix XII | FGTS, social security
contributions and benefits.................................... 228
Appendix XIII | Indirect taxes................................ 232
Appendix XIV | Setting up in Brazil A Checklist........................................................... 238
Appendix XV | Structuring an investment in
Brazil - A Checklist................................................ 244


Investment climate

Chapter 1

Brazil - A profile

Chapter 1 | Brazil - A profile


Investor considerations

Brazil is the worlds fifth largest country. With a population of some 184 million
(2007), it is also the worlds fifth most populous country after China, India, the
United States and Indonesia.

The Brazilian economy is large by almost any standard. Brazil has the
biggest economy in the world in terms of Gross Domestic Product (GDP)
derived from purchasing power parity (PPP) calculations.

Brazil has a very rich biodiversity.

Abundant agricultural, mineral and energy potential.

Enormous internal growth potential.

Broad industrial base and infrastructure and a diversified economy.

Fast-changing business conditions.

Social extremes.

Heavy bureaucracy.

Geography and climate

Brazil is the worlds fifth largest country, occupying an area of 3,287,000 square
miles (8,514,000 square kilometres), equivalent to almost half of the entire South
American continent. It borders all South American countries except Chile and
Ecuador, with a total border length of 9,777 miles (15,735 kilometres). Its coastline
runs for more than 4,578 miles (7,367 kilometres), mostly along the South Atlantic
Ocean. Brazil is comprised of 26 states and the Federal District of Brasilia, the
capital city. Its comparative landmass is slightly smaller than the USAs.
Brazil is made up of five main geographical regions:

North (mainly the Amazon basin).

Northeast (roughly east from 46 west longitude and north from 16 south

Southeast (the coastal states south of the Northeast region down to So

Paulo plus the state of Minas Gerais).

South (from the state of Paran southwards).

Central-West (states of Mato Grosso, Mato Grosso do Sul, Gois and the
Federal District).



Investment climate

Over half of Brazils landmass lies at about 650 feet (200 metres) above sea level, but only a
fraction rises above 3,000 feet (915 metres). The highest peaks have an altitude of less than
10,000 feet (3,050 metres), only six of which exceed 9,000 feet (2,745 metres): two in the far
North and four in the Southeast. The Great Escarpment runs the length of the coast from the
state of Bahia southwards and drops off at varying distances inland; fertile valleys cross most
of the terrain.
Land use is essentially as follows:
Land Use ( Ha)


Total Area 374,924,929

Permanent Crops


Meadows and Pastures 179,188,431

Forest and Woodlands




353,611,246 354,865,534


177,700,472 172,333,073


Extra official source

Arable land is found mainly in the Central-West and South regions, but this is changing with
the need to develop land for agriculture throughout the rest of the country, particularly in the
Central-West and the North. The river system is extensive; the Amazon and its tributaries,
which are great rivers in their own right, drain over half of Brazils land mass. Other large rivers
include the So Francisco River in the Northeast and the Paran and Paraguay rivers in the
Southwest, both of which are tributaries of the River Plate.
The equator runs north of the Amazon River and the Tropic of Capricorn crosses the state of
So Paulo. Most of Brazil therefore lies in the tropical zone, with only the south lying in the
temperate zone, which experiences occasional temperatures of below zero. The North is hot,
humid and rainy. Along the coast the tropical heat is tempered by sea breezes whereas inland,
especially along the Central Plateau, it is the altitude that keeps temperatures down. Humidity
is high all along the coast and rainfall is heavy. The inland Northeast region contains dry land.
Nearly every type of climate can be found except for harsh wintry weather. The country does
not suffer from earthquakes and hurricanes, but rainstorms, drought and frost do occasionally
cause considerable damage.
The country boasts some spectacular scenic beauty, particularly along the coastline.

Chapter 1 | Brazil - A profile



Brazil was discovered in 1500 by the Portuguese navigator Pedro lvares Cabral and
remained a Portuguese colony for over 300 years. Brazil declared its independence in 1822,
when a constitutional monarchy was established. A federal republic was proclaimed in 1889,
and democratic administrations have been interrupted twice since. From 1930 to 1945 the
country was subject to the civilian dictatorship of Getlio Vargas. Subsequently in 1964,
following political, economic and social unrest, a new administration was established by the
military and considerable economic growth and development was achieved during the next
20 years, although not without political and social repercussions. Democracy was restored in
A new constitution was enacted by Brazils National Congress in 1988, which upheld the
presidential system while simultaneously decentralising political power. The Constitution is
lengthy, consisting of 250 permanent articles and 94 provisional articles. In recognition of
possible flaws in the wording, the Constituent Assembly made an express provision for its
review. This review is behind schedule, although several amendments have already been
approved but yet to be regulated.

Political system
The federal republic has three independent
branches: executive, legislative and judicial.
The President heads the executive branch
and oversees a number of executive
departments, the heads of which are
appointed and are known collectively as
the Cabinet. The Cabinet is answerable to
the President. Unlike in many parliamentary
democracies, its members need not be
members of the legislative branch. Besides
the executive departments, there are a
number of independent agencies, many of
which are regulatory.
Legislative power is exerted by a National
Congress consisting of a Senate and a
House of Representatives. There are
81 senators, three from each state and
the Federal District of Brasilia. The total
membership of the House is 513 and
each states number of representatives
is determined by its population. Voting is
compulsory at the age of 18, but 16- and
17-year-olds, the over-70s and the illiterate
can opt to vote.

The judicial branch consists of a system of

federal, state and local courts throughout
the country, headed by the Federal
Supreme Court. The federal courts rule on
the constitutionality of laws and decisions
appealed from the lower courts to which
the Federal Union is party. The Supreme
Courts decisions are final and cannot be
appealed. The state and municipal courts act
independently of the federal courts, within the
bounds of the Constitution.
State governments follow a pattern similar
to that of the federal government. Each
state has a governor as chief executive and
power is divided among the state executive,
legislative and judicial branches.
There are many political parties, although
ideologies are not clearly developed.


Investment climate

Legal system
The principal source of Brazilian civil law is the Civil Code, which dates from 2002, and
subsequent legislation. The legal system is slow and cumbersome.

Population and social patterns

The population is roughly 184 million (2007) and estimated to be growing at about 1.11
percent (2007) per year.
About 12 percent of the population is under 24 and 11 percent is over 60.
The average life expectancy is 72.48 years.
A reduction in poverty has been witnessed, especially among those living in extreme poverty
(with income of up to of a minimum wage per capita).
Table I denotes the comparative distribution of population, area and GDP per capita by region.

Population Distribution by Area and GDP per capita - 2003-7



GDP per

(In millions)

(In Reais)





















13,914 (average)

Chapter 1 | Brazil - A profile


So Paulo is one of the fastest-growing cities

in the world.
Estimates for 2009 rank the state of So
Paulo as the most populous state, with 41.4
million inhabitants, followed by Minas Gerais
(20 million) and Rio de Janeiro (16 million).
These three states in the Southeast Region
concentrate around 40.4% of the population.
The majority of Brazilians are of European
or African descent. Apart from the original
Portuguese settlers, others who have
settled in Brazil and significantly influenced
its culture include Germans (mainly in the
southern states), Italians and Japanese
(mainly in the state of So Paulo). There are
many other smaller ethnic communities in the
larger cities representing most nationalities.
There are also some sparse indigenous
tribes in the jungle regions.

The official language of Brazil is Portuguese.
There are no significant local dialects or
other deviations from the official language,
but a number of words and phrases differ
from those used in Portugal. English is the
foreign language most used by the business

The predominant religion is Roman
Catholicism. Many other religions are also
practiced, introduced by immigrants of
different creeds that settled in Brazil. There
is freedom of religious and religion is not a
source of unrest.


Government-subsidised (free) and private
educational facilities from primary school
through university, offer full- or part-time
curricula. The government also subsidises
national apprenticeship training programmes
to prepare labour for various industrial and
commercial sectors and an educational
program to reduce illiteracy. About 90 percent
(2008) of the adult population is considered
to be literate. The general level of education
requires much improvement. Approximately
9.5 percent of enrolled students go on to
higher education.
Improvements in the publics education
levels have been observed, compared to the
previous decade.

Living standards
The living standards of a large proportion of
the population are very low, while those at
the top are extremely high. This income gap
between rich and poor has been a constant
preoccupation of successive governments.
Basic social indicators highlight the
differences in regional development.
The gross domestic product (GDP) per capita
in 2007 was the equivalent of about USD
8172 per annum (R$ 14,465 in Reais).

Cultural and social life

With its mixed background of Portuguese,
Italian, German, Japanese, East European
and African immigrants, Brazil offers a broad
spectrum of cultural and social activities,
depending on the region. Most major cities
support cultural institutions. Leisure and
recreation activities are mainly outdoors,
taking advantage of the favourable climate.
Many clubs in Brazil offer extensive sports
and social facilities.


Investment climate

The Economy
General description
The Brazilian economy is large and diverse by almost any standard. There is still
considerable state and semi-state participation in various strategic sectors, such
as transport and utilities. Brazil has undergone several privatisation programmes of
state-owned companies, most of which took place in 1998 when the telecoms were
sold. Nearly all of the former state companies are now controlled by the private
Natural resources and agriculture have been the traditional mainstay of the
economy, supported by abundant human resources. Since the 1960s, however,
the emphasis has been placed on industrial development financed largely by
international loans and investments. As a result, exports today reflect a much more
balanced mix of commodities and manufactured items. Moreover, the profile of
imports became more restricted during the 1970s and 1980s because of import
substitution and the scarcity of foreign exchange. This situation is changing
following the lowering of trade barriers and the increased opening of the economy
to globalisation.
The wealthiest areas of Brazil, in which industrialisation and a modern regional
economy have taken hold, are the Southeast and the South. In contrast, the Northeastern and Central Western regions are predominately agricultural and relatively
poor because economic and social programmes have not yet been modernised.
The Northern region, dominated by the Amazon rain forest, has a low population
density and remains virtually unexplored.
Major trends are summarised in Table II.

Chapter 1 | Brazil - A profile



II. Major Economic Trends




GDP (USD billion) - at year-end exchange rates




Real GDP (inflation indexed) growth (% per year)




Unemployment rate Average Annual

(% of labour force)




General price index - IGP-DI




Consumer price index - IPCA




Exchange rate at year-end (R$/USD)




Public sector deficit (% of GDP)




Public sector debt (% of GDP)






(*) A new method was introduced in 2002

Selic Interest Rate (end referential,% p.a.)

(Average daily interest rate, annualised based
on 252 working days)


in USD billion
Trade balance
Current-account balance (USD bn)
International reserves
Direct foreign investment
Total foreign debt





Investment climate

Mineral and energy resources

Agriculture, fisheries and forestry

Brazil is rich in natural resources and has

some of the largest iron ore deposits in the
world. Brazil is one of the worlds largest
producers of tin, quartz and niobium and one
of the three largest producers of iron ore,
manganese and tantalum.

Vast areas of land are suitable or adaptable

for agriculture.

The Brazilian steel industry ranks amongst

the seven largest in the world. Many other
metals, minerals and precious stones are
also mined on an increasing scale.
Brazils natural resources also include
petroleum and hydropower. Most of Brazils
electricity comes from hydropower and it
possesses extensive untapped hydroelectric
potential, particularly in the Amazon basin.
The Itaipu dam in the extreme south-west is
the worlds largest hydroelectric power plant
in terms of energy generation.
Petrobras recent oil and gas discoveries in
the pre-salt area could place Brazil amongst
the top oil-exporting countries in the world.
The replacement of fossil fuels as the main
source of energy will fuel the demand for
agro-energy. Brazil has been developing
successful initiatives in renewable energy
sources for years. Through the expansion
of the ethanol sector focusing on efficiency
and productivity, Brazil is acknowledged as a
world leader in bioenergy. Alcohol production
from sugarcane is a successful example
worldwide and it is possible to repeat the
process with other types of biomass.
The alcohol sector in Brazil is currently
undergoing a major expansion, with heavy
investment being made by national and
international groups.
Foreign investors are now being encouraged
to engage in the mineral and energy sectors.

The country has made long-term investments

in agricultural research and now has a very
advanced tropical agricultural technology
in the world. This has allowed agribusiness
to develop and increase its production and
Brazil is currently the worlds biggest
producer of the following products: Coffee,
sugar and orange juice. Brazil also has a
very significant production of soybeans of 60
million tons, about 25% of global output.
In terms of exports, Brazil is the main
exporter of the following products: soybeans,
coffee, sugar, orange juice, ethanol and beef.
Other important crops include maize, cocoa,
tobacco and bananas.
Agribusiness performance has improved in
the last five years, primarily driven by exports
of soy and soy products, beef, pork and
The Brazilian cattle herd growing
continuously and has made advances in
productivity. The production cost of Brazilian
beef is amongst the lowest in the world,
which makes it extremely competitive. It is
believed that Brazil will continue to be the
leading global exporter of beef and poultry.
Brazil occupies an outstanding position in the
biofuels and bioelectricity sector, which has
the capacity to make the global energy matrix
greener and more renewable. The sector
is stimulated by certain other significant
competitive edges, like highly qualified
human resources, the initiatives of private
and public research institutes of international
repute, and the agricultural credit supply

Chapter 1 | Brazil - A profile



at competitive interest rates. The country is now therefore capable of meeting the worlds
food demand, thanks to successive production and productivity records. It is also capable of
meeting domestic demand and generating a growing surplus for export.
The fishing potential along the 4,578 miles (7,367 kilometres) of coastline is significant but has
not been properly exploited.
Forest areas still abound, particularly in the Amazon basin. International protests have been
raised against forest clearance and the potential damage to the environment.
The advance in land clearing mainly affects the Central-West and North regions.

III. Brazil has global leadership positions in the main agricultural products
Market Share


Exports Global share

Soybeans (thousand tons)





Corn (thousand tons)





Beef (thousand tons)













Sugar (thousand tons)





Ethanol (million litres)





Coffee (thousand sacks 60kg)





Orange Juice (thousand tons)





Poultry (thousand tons)

Pork (thousand tons)

Principal Foreign Trade Goods

USD billion



Orange Juice
Iron and ore




Investment climate

Major manufacturing industries include petrochemicals, steel, automobiles, mining,
cement, paper and related products, agribusiness and food processing. There is
huge potential for expansion in all sectors. There are still restrictions on foreign
investments in certain sectors (See Chapter 3 for further details).

High-tech industries
The high-tech sector mainly entails the assembly of imported components and
parts. Multinationals dominate, but there are several large Brazilian groups. As
in other parts of the world, in the past couple of years Brazil has witnessed the
creation of new start-up businesses in the Internet sector and an increase in
venture capital being invested in these businesses.

Service industries
Service-providing industries are a significant and growing part of the economy.
There is good growth potential for the tourist and information services areas.
Business services are considered to be fairly sophisticated. Multinationals have a
strong presence in advertising, computer services and management consultancy.
Many large industrial groups have their own distribution networks. Apart from
restrictions in the banking, financial services and telecommunications sectors,
amongst others, foreign investors may operate in service industries.

Transport and communications

Since the inclusion of government-controlled railroads in the Brazilian National
Privatisation Program, there has been significant investment in the development
and modernisation of the railroad network. This network is mainly located in the
Southeast and South regions, although there are plans for some major extensions
in the North and Central-West regions. Urgent investment has been earmarked
for the Northeast region . However, road transport still dominates for both longdistance and intercity traffic. Most major federal and state highways are also in a
poor state of repair. Nearly all road transport and haulage companies are privately
owned. In addition, the government intends to privatise the remaining roads which
have not been privatised yet.

Chapter 1 | Brazil - A profile



The air transport infrastructure is well developed and the majority of airline company voting
stock is in private hands. Urban transport continues to present significant problems in major
centres. Limited subway systems are now functioning in Rio de Janeiro and So Paulo, mainly
in the latter, which has expanded its network. However, until a more extensive network has
been developed, subways will not significantly alleviate the problems affecting urban transport.
Many companies provide private bus services for their employees. The potential of the
waterways and coastal transport has not been exploited.
The postal system, which is government-controlled, has made considerable progress over the
past few years and compares favourably with the postal systems in Europe and in the United
States. Private courier services are widely available, offering both local and international
delivery services.
As mentioned earlier, the telecommunications system is now controlled by the private sector.
It should be noted that the telecommunications companies are also controlled and supervised
by the National Telecommunications Regulatory Agency (ANATEL). (See chapter 6 for further

Trade balance and foreign trade

The trade balance and principal foreign-trade products are summarised in Tables IV and V.
IV. Trade Balance

(USD billions)




Trade Balance FOB













Investment climate

VI. Principal Foreign-Trade Goods

(USD billions)





Primary products




Industrialised products






Main Products Exported in 2009 USD Million


% 2008/9

Share %

1. Soybeans and related Products


- 4.1


2. Transport Material


- 40.2


3. Oil and Fuel




4. Ore


- 22.8


5. Meat




6. Metallurgy Products


- 42.8


7. Chemicals


- 11


8. Sugar & Ethanol




9. Machinery & Equipment




10. Paper & Pulp




11. Electrical Equipment




12. Coffee and related Products




13. Tobacco and related Products




14. Footwear & Leather




15. Textiles




Chapter 1 | Brazil - A profile



Main Products Imported in 2009 USD Million


% 2008/9

Share %

1. Mechanical Equipment




2. Fuel and Oil




3. Electrical and Electronic Equipment




4. Motor Vehicles and parts



5. Organic and Inorganic Chemicals




6. Optical and Precision Equipment




7. Plastics and related Products




8. Iron, Steel and related Products




9. Pharmaceuticals




10. Fertilisers




11. Cereals and Milling Products



12. Rubber and related Products




13. Airplanes and parts




14. Synthetic and Artificial Filaments and Fibers




15. Copper and related Products


- 46.7


Investment climate

Trading Partners and Suppliers

Principal Trading Partners 2009
USD Million


% 2008/9

Share %

1. United States
2. China
3. Argentina
4. Germany
5. Japan
6. South Korea
7. Nigeria
8. Italy
9. France
10. Mexico
11. Chile
12. Taiwan
13. United Kingdom
14. India
15. Switzerland





% 2008/9

Share %

European Union
Latin America & The Caribbean
LA & The Caribbean (exc. Mercosur)
United States
Middle East
Eastern Europe


- 23.3


Major Importers to Brazil 2009

USD Million

Chapter 1 | Brazil - A profile



Tips for business visitors

Guest visas


Foreigners seeking entry to Brazil as nonimmigrants must first obtain the appropriate
visa. Applications should normally be made
to a consular office in the applicants country
of origin or current residence.

The monetary unit is the Real (R$; plural,

reais) which is divided into 100 units called

Business visas are required by foreigners

travelling to Brazil for specific business
purposes such as attending meetings and
workshops, getting to know the Brazilian
market and visiting clients. Holders of
business visas may stay in the country for a
period of up to 90 days, extendable for the
same period. As a general rule, business
visa holders do not acquire tax residency in
Brazil. Business visas are not required for
citizens of those countries with which Brazil
has specific reciprocal arrangements.

The Central Bank allows the official

exchange rate to float freely, but forex
trading is restricted to authorised dealers.
The Bank intervenes when there are signs
of speculative operations. There is an active
parallel exchange market that, although
illegal, is quoted in the daily newspapers, as
well as an official tourist rate that normally
approximates the parallel rate.

The official bank sale exchange rates as of

December 30, 2009 are as follows:

$ 1


The parallel exchange rate at the same date

was USD 1 = R$ 1.86


Investment climate

International time
Brazilian Standard Time in relation to Greenwich Mean Time (GMT) and to U.S.
Eastern Standard Time (EST) is as follows.




Ahead of

Eastern Brazil
Western Brazil



Daylight saving time runs from October to February, when the clocks are put
forward by one hour.

Business hours
The working day is normally eight hours for commercial offices, typically from 8:30
a.m. or 9:00 a.m. to 5:30 p.m. or 6:00 p.m., Monday to Friday, with a lunch break
of between sixty and ninety minutes. A few factories still work Saturday mornings.
Most retail outlets open on Saturdays and Sundays. Banks are generally open to
the public from 10:00 a.m. to 4:00 p.m. and government offices from 9:00 a.m. to
5:00 p.m. Both are closed on Saturdays.

Bank holidays
Brazil has the following bank holidays:
New Years Day
Shrove Tuesday (Carnival)
Good Friday
Tiradentes Day
Labour Day
Corpus Christi
Independence Day
Brazils Patron Saint Day (N.S. Aparecida)
All Souls Day
Proclamation of the Republic
Christmas Day

January 1
April 21
May 1
September 7
October 12
November 2
November 15
December 25

Holidays that fall on a Saturday or Sunday are not moved to a weekday.

Chapter 1 | Brazil - A profile


In addition to the above, municipal authorities may decree three additional

holidays, normally on dates of local significance. The most celebrated of these is
Carnival (Mardi Gras) in February/March each year, when business virtually comes
to a standstill Monday through Wednesday.

Weights and measures

Brazil uses the metric system, but some traditional or unusual measures still
appear in real-estate transactions.

Dates and numbers

Dates are usually written in the order of day, month, and year; e.g., 1 May 1996 or
Numbers are written with a full stop to denote thousands and a comma to denote
fractions; e.g. R$ 2.000,50 (two thousand reais and fifty centavos).

Local customs
Business is generally conducted in a fairly formal manner, especially in the large
cities. Business meetings are rarely held at breakfast time, although business
lunches and dinners are common. Business entertainment often involves attending
social events.

Research Sources
Brazilian Institute of Geography and Statistics (IBGE)
Foreign Trade Secretary
Brazilian Central Bank
Agribusiness sites
National Bank for Social and Economic Development (BNDES)
National Civil Aviation Agency
Terrestrial Transport National Agency



Investment climate

Chapter 2


Chapter 2 | Business environment


Investor considerations

Fast-changing business conditions.

Considerable bureaucratic interference and regulation.

Multiple and high taxes.

Inflation under control.

Abundance of semiskilled and unskilled labour.

Commodity powerhouse.

Tax incentives negotiable in some locations.

Industrial modernisation during the last decade.

Underinvestment in infrastructure matrix.

Industrial climate
Governments have customarily supported free enterprise and the free-trade
system. However, some state and semi-state entities still control part of the
public utility sectors, the petroleum industry is still a government monopoly,
excluding distribution, and oligopolistic situations exist in a few sectors. There is
considerable bureaucratic intervention; regulations change constantly and there
are complex labour and tax codes. On the other hand, there is a motivated work
force and the development of labour-intensive industries and ventures directed
toward exporting is encouraged.
Generally speaking, Brazil was a relatively closed economy in the 1970s and
1980s. However, trade liberalisation took place in the 1990s, resulting in the lifting
of trade barriers and protective practices; local manufacturers are now more
competitive internationally.



Investment climate

Framework of industry

Aims of government policy

The Brazilian economy is fairly broad-based,

including almost every type of industry
imaginable. It is a mixed economy and
includes listed companies, state monopolies,
semi-state companies, foreign-owned
companies, joint ventures, closely-held
companies, family enterprises, and many
small businesses operating in various
formats. Financial markets and an active
stock market exist. The So Paulo Stock
Exchange (BM&FBovespa) has become one
of the three largest in the world in market
cap. A number of Brazilian companies have
raised billions of dollars in recent IPOs
and are included amongst the worlds top
fundraising operations.

General policy has been to promote overall

economic growth and fight poverty. However,
this policy has been adversely affected over
the years by the political situation, problems of
servicing and reducing the foreign debt, and
tough economic measures to shackle inflation,
including the adoption of high interest rates.

Brazil is widely acknowledged as a global

commodities powerhouse, and is the leading
exporter of a great variety of items including
animal produce (meat and chicken), grain
(mainly soy and beans) and sugar, amongst
many other items.
The state-owned oil & gas company
Petrobras, one of the largest of the world,
has announced the discovery of a mega oil
field in the so-called pre-salt layer off the
So Paulo state coast. This region boasts
huge potential volumes of oil and could place
Brazil amongst the top oil exporting countries
in the world. Massive investment in this
sector is expected in the years ahead.

Economic development plans

There is a clear political need to improve the
overall living conditions of low-wage earners
by assuring adequate housing, health care
and food supplies at reasonable prices. As a
consequence, the specific objectives of recent
governments have been as follows, in no
particular order.

Achieving a more even distribution of

income and wealth, on both an individual
and a regional basis.

Maintaining inflation at manageable levels

through containment of government
expenditure and control of monetary

Maintaining foreign-trade surpluses.

Establishing an energy-expansion program.

Developing the agricultural sector.

Upgrading the labour force by intensifying

educational, training, health and social
welfare programmes.

Strengthening the local capital market by

attracting personal savings and foreign

Privatising certain public-sector companies.

Reducing the so-called Brazil Cost,

which consists of the costs related to doing
business in Brazil and which may diminish
investment opportunities.

Chapter 2 | Business environment


There is general recognition that the

historical uncertainties concerning the
political and economic climate over the
years has deprived Brazilian business of
the necessary investment to modernise
and become internationally competitive.
The country is now viewed by most of the
international community as a much more
predictable place to invest.

Brazils performance during the

2008/2009 international financial crisis
Brazil overcame the international economic
turbulence and crisis in 2008/2009 and
emerged stronger and more attractive from it.
Brazil is the first Latin American country, and
probably one of the first countries worldwide,
to have emerged from the international
Although the global environment remains
difficult and the export sector is therefore
continuing to struggle - also as a result of
a strongly appreciated Real - Brazils sheer
size (2009 GDP of approximately USD 1.6
trillion) and the strength of its domestic
demand (60% of GDP) have made an
economic recovery possible.
A highly diversified economy and trading
partners, as well as a solid financial system
leveraged by active regulators and the
Central Bank, have also helped to counter
the effects of the crisis in Brazil.
The economic impact of the global financial
crisis and falling demand has been
less severe for Brazil then for the USA,
Europe and Asia. This is a consequence
of successful long-term joint public and
private initiatives for growth. A combination
of factors, such as more than fifteen years
of political stability, the pursuit of fiscal
discipline, high international reserves,


solid macroeconomic indicators (based

on a strong focus on inflation control) and
the strengthening of the middle class
consumption power, have led Brazil to this
Furthermore, credit is due to the government
for reacting promptly and implementing
anticyclical measures to sustain the
consumption of durable goods and the flow
of credit, particularly for the automotive and
construction industries and for households.
These measures contributed to lower
unemployment and the economy recovery.
One year on from the bankruptcy of Lehman
Brothers, the event that triggered the
international financial crisis, there is now
increasing recognition that Brazil was one
of the most successful countries in fighting
the crisis. While most countries were making
tentative recoveries, Brazil was one of the
first to emerge pretty much unscathed from
the crisis.
Financial and strategic investors are aware
of these opportunities and realise that Brazil
is the place to be. Cross-border merger and
acquisitions and strong capital markets will
play an important role.
Brazil has been chosen as the host nation
for the 2014 FIFA World Cup. Rio de
Janeiro has also been elected to host the
2016 Olympics. Long-term strategies and
investments (including pre-salt oil exploration
opportunities) are now top of the agenda.
Brazil is a veritable potential economic
The countrys social and economic inequality
is also being addressed and the government
has made significant inroads into poverty
(through programmes like the Bolsa Famlia
welfare programme).


Investment climate

These initiatives are expected to yield

results in the medium and long term.
Some regions, namely the northeast, now
face the challenge of reaching out for
opportunities that are already available to
the rest of the country.
Brazil deserves close attention while
it is preparing itself for the future. The
country has huge infrastructure demands
and a need for further public and private
investment in education and healthcare.
Top priorities on the governments agenda
should include structural tax reforms and
tight controls over government expenditure
to spur the countrys economic growth.

Regional/special industry
The government and most states promote
the attraction of new investment, generally
for all types of industry, and provide
assistance to obtain financing and advisory
services. Tax incentives are commonly
negotiable and granted at federal, state
and municipal levels.

Free-trade zones
Brazil has a long-term free-trade zone
in the city of Manaus (Zona Franca
de Manaus) until 2023. A number of
multinational companies have operations
in Manaus, mainly in the electronics and
automotive sectors (see Free-trade zones
in Chapter 4).

Financial services
Brazil has some of the most sophisticated
financial institutions in the world. The largest
Brazilian banks are included amongst the most
solid banks globally. All the major international
banks operate in the country. Moreover, the
government has established several financial
aid credit facilities to further the development
and modernisation of key sectors. For
information on available banking and financial
services see Chapter 7. However, financial
centre operations and offshore financial
services are not available.

Public/private sector cooperation

The private sector has many industrial,
commercial and banking federations at state
level that cooperate with, and have access
to, ministries and senior government officials.
There are also national confederations for
various sectors of the economy. The National
Confederation of Industry, made up principally
of leading businessmen, meets regularly with
various ministers responsible for economic

Industrial/management relations
Brazil has a large labour force, but many
workers are semiskilled and unskilled. There is
a shortage of technical and skilled personnel.
Trade unions are a force to be reckoned
with in the country and can be quite militant.
Fringe benefits and social security costs are
a significant element of overall labour costs.
For more details of industrial/management
relations see Chapter 10.

Chapter 2 | Business environment


Overseas trade relations

Membership of trade blocs
Brazil is a member of the Latin American Integration Association (ALADI), the
World Trade Organisation (WTO), formerly the General Agreement on Tariffs and
Trade (GATT) and the Common Market of the Southern Cone (MERCOSUL),
whose members currently include Brazil, Argentina, Paraguay and Uruguay, with
Chile, Bolivia, Peru, Colombia, Ecuador and Venezuela being associated countries.
Under the MERCOSUL treaty agreement, tariffs are abolished; the movement
of labour, goods and services is unrestricted; capital investment is encouraged;
macroeconomic policy is coordinated; and foreign-trade policies and tariffs for nonmember countries are harmonised.

Brazil encourages exports by offering a number of incentives, including duty
exemptions or reductions for imported materials that are used in exported goods,
value-added-tax benefits, special financing arrangements and others. For more
details on investment incentives see Chapter 4.
Special export licenses are normally required for goods that are in short supply in
the domestic market. There is some regulation concerning the export of certain
goods, which are subject to previous government approvals.

Trade barriers
All imports and exports are controlled by DECEX (Departamento de Operaes de
Comrcio Exterior), the foreign trade department of the Bank of Brazil. For many
years, local industry was protected from imports and the overall tariff burden was
high. In general, trade barriers were set up because of the need to industrialise
and to develop local industries, but also because of the foreign-debt situation.
In the last few years, however, import duties and trade barriers have been
gradually reduced and imports of various products are encouraged when local
prices are higher than international prices or when there is a shortage of local
products. For more information on exporting to Brazil see Chapter 8.



Investment climate

Chapter 3

Foreign trade
and investment

Chapter 3 | Foreign trade and investment opportunities


Investor considerations

Foreign investment is generally welcome.

Brazil is accepting of Latin American expansion programs.

Large potential consumer market and a booming middle class.

Export-based enterprises are generally favoured.

Foreign investors are eligible for most available incentives.

Restrictions on foreign ownership exist in few sectors, including aviation and


Favourable changes in business culture and spread of corporate governance

and best practices

Robust performance of IPOs and M&A markets in recent years.

Investment Grade rating awarded by all major agencies.

Investment climate
Government attitudes towards foreign investment
The Constitution states that foreign investment should be in the national interest
and is welcome provided it represents a long-term commitment to economic
development, particularly in those areas that are high on the governments list of
priorities. These include the development of agriculture, technology and labourintensive industries and the manufacture of goods that are currently imported and
goods that will increase exports.
Direct foreign investment was rising significantly until the year 2008. However, a
considerable contraction was witnessed in 2009 following the global credit crunch,
as shown in the table below in millions of US dollars.













All forms of investment are welcome, as long as they do not contravene local
policy regarding foreign investment and national security.
The restrictions on foreign ownership are imposed mainly for national security
reasons in the areas of defence and air transport.



Investment climate

Trade policy

Special investment opportunities

Brazil is generally supportive of free trade,

but high tariffs are imposed on many imports.
For more information concerning overseas
trade relations see Chapter 2.

In general, Brazil is an attractive investment

opportunity for companies interested in the

Tapping the local markets considerable

potential. There are still many
dissatisfied consumers.

Taking advantage of the abundant raw

materials and natural resources.

Using the sizable and growing labour


Locally producing items that are

currently imported.

Using Brazil as a manufacturing base for

exports, especially regarding Mercosur

In general, local businessmen welcome

foreign investment. Certain sectors have
lobbied hard to protect their activities by
various means, including the imposition of
trade barriers and restrictions on foreign
investment. Such lobbying was quite
successful in the past, although this situation
is gradually changing as governments seek
greater efficiency and competitiveness.

Improving infrastructure has become a

priority (including railways, motorways,
ports, airports, water and waste
treatment and power generation).

Taking advantage of the massive

investments which are expected in
relation to the huge pre-salt oil reserves,
the 2014 FIFA World Cup and 2016
Olympic Games.

Labour attitudes towards foreign


It is generally possible to import vital

components/consumables if there is
inadequate or no local production thereof,
although there are restrictions in specific
areas (see Government attitudes towards
foreign investment above), bureaucratic
delays and high import duties that can nullify
the advantages. However, regardless of the
points outlined above, most products can be
imported, subject to local legislation.

Taxation policy
The federal tax system is not biased against
foreign investment and there are no tax
incentives that favour foreign investors.
Save a few exceptions, foreign investors are
generally entitled to the same tax treatment
and incentives as their local counterparts.
Various states and municipalities actively
seek foreign investment. For more
information on tax incentives see Chapter 4.

Local competitor attitudes towards

foreign investment

If foreign investment and management can

be seen to bring jobs and competes on an
equal footing with Brazilian business, it tends
to be embraced by workers. (For details on
Foreign Individuals see Chapter 20
Taxation of Individuals and Chapter 10
Industrial relations and Social Security in the
section Expatriate Personnel in Brazil).

Chapter 3 | Foreign trade and investment opportunities



Planning guide for foreign investors

National and local government policy

The federal government and the states

generally support free enterprise and
free trade.
Foreign investment is generally welcome
but should provide benefits to Brazil and
its citizens, i.e. job and wealth creation.

Local and foreign investors are treated

the same, in general.

Current policy favours the lessening

of bureaucratic interference and the
deregulation of business, except
those related to infrastructure, such as
telecommunications, energy utilities,
petroleum, water supply and healthcare,
which are subject to regulatory

Prior approval or registration

Prior approval is not required except in

rare circumstances.

Registration of foreign investment with

the Central Bank is a condition for
repatriation of capital and remittance of
dividends and profits.

A permit is required to operate a

financial institution.

Registration requirements vary at state


Possible business structure

For foreign investors, the most common

form of doing business is through an
incorporated subsidiary or limited-liability

Branches are difficult to form and

depend on Presidential Decree
approvals, whereas it is more
straightforward to establish corporations
(sociedades por aes) and private
limited-liability companies (limitadas) in
terms of bureaucracy and approvals.

Investment possibilities/restrictions

Federal and state governments

generally have an open attitude towards
foreign investment.

In general terms, 100 percent foreign

ownership is possible.

There are some restrictions on foreign

ownership of financial institutions,
communications companies, certain
other strategic sectors and rural land.

In general, there are no nominal

minimum capital requirements, except
for financial institutions.

While joint ventures do not require

participation by a local entity, it is
generally helpful to have one.

Joint ventures with local partners may

be favoured but are not essential.


Investment climate

Setting up or acquiring business


Foreign investors generally incorporate

new companies or acquire existing

Setting up new companies is relatively

straightforward and inexpensive, and
normally takes about a month.

Foreign-controlled companies can be

listed on the stock exchanges and raise
capital through public subscriptions or
debenture issuances.

A Brazilian holding company may be set

up to acquire a business.

A wide range of credit and financial

services is available from local and
foreign banks operating in Brazil.

Asset or share acquisitions should be

planned with care.

Long-term financing is available from

investment companies and government
investment banks.

For additional considerations see

Appendices XIV.

Repatriation of capital and profits

Foreign investors are generally eligible

for the available incentives.

The federal government offers tax

incentives in certain underdeveloped or
strategic areas.

Capital and earnings may generally be

repatriated on a tax-free basis, limited to the
amount registered at the Central Bank of
Brazil. Amounts in excess of the registered
amount may be treated and taxed as capital
gains (subject to income tax at the rate of
15%, which can rise to 25% if the beneficiary
is located in a tax haven, as provided for in
Brazilian legislation).

Many state and local governments offer

incentives to attract investment.

Work force and labour costs

Investment incentives

Location is generally determined by key

business factors.

A plentiful labour supply exists, but

many of the workers are semiskilled or

Regulations concerning various aspects

of business (e.g., indirect tax rates and
incentives) vary from state to state.

Payroll charges and taxes tend to be

higher than in other countries.

Market studies


Special federal programmes reward

investments in the poorer North and
Northeast regions.

Discussions with state development

agencies are recommended.

Market studies are advisable.

PricewaterhouseCoopers Brazil can
assist in such studies and in other
phases of setting up Brazilian operations
as well as in potential investment and
acquisition analyses.

Chapter 3 | Foreign trade and investment opportunities


International financial centre

Brazil is not a centre for international financial services and offshore


Information and assistance

Any further information and assistance may be obtained from

PricewaterhouseCoopers offices throughout the country. For the addresses of
our offices see the inside cover.

Current Trends

Overall modernisation of the economy.

Increase in private investment is forthcoming to cope with growing demand.

Increasing foreign direct investment.

2014 FIFA World Cup and 2016 Olympic Games to be hosted by the country.

Reduction of government involvement in business.

Gradual elimination of restrictive and protectionist practices.

Lowering of trade barriers to foreign competition.

Increasing and diversified export base.

Maintaining fiscal discipline and solid macroeconomic indicators.

Increasing credit facilities (real estate/consumer).



Doing business

Chapter 4


Chapter 4 | Investment incentives


Investor considerations

Local and foreign investors are generally treated equally as regards

investment incentives and tax concessions.

There are no special federal tax incentives to attract foreign investors.

Many state and local governments offer investment incentives in the form of
reductions in indirect taxes.

Tax concessions are available for locating in the poorer Northeast and
Amazon regions, including reductions in federal income tax.

Incentives are available for the promotion of exports.

Investment policy
Foreign investment is generally welcome and actively sought, particularly if it
brings new technology, creates new jobs, develops agriculture and increases
exports or decreases imports.
There is a wide variety of federal programmes designed to encourage the
economic development of Brazil and also to promote regional development.
They tend to favour operations in the poorer Northeast (SUDENE) and Amazon
(SUDAM) regions. Several programmes provide export incentives.
State and local governments also encourage investment and they generally offer
incentives to attract local and foreign investors.
There are no specific incentives for establishing holding companies and regional
administrative offices, and there are no tax havens or offshore financial facilities.
There is a free-trade zone in Manaus and fiscal benefits apply in areas of the
Western Amazon region (see Free-trade zones further on).

Tax concessions
Few federal tax concessions are available to local and foreign investors. Those
that exist are designed to accelerate the development of certain less-developed
regions and industries considered of importance to the economy. However, in
general, there are no specific tax concessions to attract foreign investors.
State and local tax concessions vary depending on the importance of the
prospective investor to the area.



Doing business

Regional incentives
Regions affected
The following regional agencies are responsible for development in the listed
SUDENE (Northeast region)

SUDAM (Legal Amazon)

Esprito Santo
Maranho (part)
Minas Gerais (part)
Rio Grande do Norte

Maranho (part)
Mato Grosso

In general, incentives are available to both local and foreign-controlled companies.
However, the granting of incentives depends on approval by the federal
government agencies SUDENE and SUDAM for the implementation of new
industrial projects or the planned expansion, diversification or improvement of an
existing industry. SUDENE and SUDAM evaluate not only a projects technical and
economic feasibility, but also its suitability as part of the regions overall economic

Tax incentives
For the Northeast and Amazon regions, the investment incentive plans
administered by SUDENE and SUDAM, respectively, offer certain fiscal benefits to
companies operating approved projects, as follows:

Reduction of 75% of the income tax and non-refundable surcharges

from January 1998 to December 2013 due on operating profit (lucro de
explorao), for implementation, expansion, diversification and improvement
projects submitted by December 2013 relating to economic segments
considered as priority for regional development, for a maximum period of ten

Chapter 4 | Investment incentives


Gradual reduction of income tax, from

25% to 12.5%, from January 1998
to December 2013, for legal entities
which maintain economic enterprises
in economic segments considered
as priority for the development of
the aforesaid region or which are
headquartered in the Manaus FreeTrade Zone.
Exemption from the Merchant Marine
Fee - AFRMM and Tax on Financial
Transactions - IOF (for exchange
transactions made to pay for imported
goods) for enterprises which implement,
expand, diversify and improve
businesses in the Northeast and
Amazon, and are declared as being of
interest to regional development by the
regional development agency.

The corporate income tax reduction cannot

be distributed to the companys quotaholders/
shareholders and must be booked and kept
as a subsidy reserve (capital reserve), to be
used only for capital increases or offsetting
existing losses.
Certain state VAT (ICMS) incentives are
also made available to certain businesses
depending on the nature and peculiarities of
the project.

Nontax incentives
For companies in the Northeast and Amazon
regions, low-cost loans or loan guarantees
are granted by government development
banks, such as the Bank of Northeast Brazil
(BNB), the Amazon Bank (BASA) or the
National Bank for Social and Economic
Development (BNDES).


Taxes on earnings repatriated to foreign
shareholders are detailed in Chapter 17.
Any unrepatriated earnings may be invested
in the same or any other company in Brazil.

Industry incentives
The import of capital goods, which are
not available in the Brazilian market,
might qualify for an Import Duty reduction,
subject to government approval, in order to
stimulate the broadening, modernization and
restructuring of the Brazilian industrial sector.
Some of these capital goods also benefit
from an excise tax (IPI) reduction.
The National Bank for Social and Economic
Development (BNDES) provides lowcost financing for investment projects, the
acquisition of equipment and the export of
goods and services. Moreover, the bank
shores up the capital structures of private
entities and allocates its non-refundable
finances to projects which further the social,
cultural and technological development of
For companies engaged in agricultural
activities, capital expenditure may be taken
as a tax deduction in the year of acquisition.
Taxes on earnings repatriated to foreign
shareholders are detailed in Chapter 17.


Doing business

Fiscal incentive investments

Brazilian and foreign-controlled companies may choose to invest part of their tax
liability in certain approved investment projects owned by them until 2013. Such
investments are generally referred to as fiscal incentive investments and in total
may not exceed the rate of 30 percent, nor be lower than 9 percent of the total
annual income tax liability. This percentage varies depending on the investment
period and location. These approved investment projects are normally granted total
or partial tax exemption for varying periods of time.

Special-use company incentives

In principle, special-use company incentives do not exist in Brazil

Free-trade zones
The Manaus free-trade zone (Zona Franca de Manaus, Amaznia Ocidental e rea
de Livre Comrcio de Macap/Santana) was created in 1967 to attract industry and
commerce to the Amazon region. All imported foreign goods are tax free, provided
they are consumed within the zone or are exported abroad. Sales or transfers of
these goods to other parts of Brazil result in payment of the previously exempted
taxes. Foreign-controlled subsidiaries may establish assembly operations and
enjoy the same benefits as local companies. Sales from other parts of Brazil to
the Manaus free-trade zone are also entitled to certain tax benefits. These fiscal
benefits also apply to certain specific areas of the Western Amazon region, which
cover the states of Acre, Amazonas, Rondnia and Roraima.

Export processing zones

These zones (Zonas de Processamento de Exportao) are characterized
as free-trade areas and are located in certain less-developed regions in need
of investment. Authorized companies must produce or process merchandise
exclusively for export. Imports and exports are exempt from import and excise
taxes and also enjoy favourable income tax treatment. These zones were created
in 1988.

International financial-centre operations

There are no special concessions to encourage the establishment in Brazil of
holding companies, investment vehicles, regional headquarters, administrative
offices, tax-haven activities or offshore operations.

Chapter 4 | Investment incentives


Export incentives
The various incentives available to exporters
include the following:

Under the Special Customs Drawback

Scheme, suspension and exemption
can be obtained for import duties,
excise tax and value-added tax on sales
and services as well as other taxes
and charges for imported goods to be
used in the manufacture of products
for export. These incentives are
normally available for up to two years.
Exporters may also benefit from the
new modalities of drawback, greenyellow and integrated, which permit
the suspension of taxes levied on the
goods acquired in the domestic market
for the manufacturing of products to be
Exemption from withholding tax, under
certain conditions, on export commission
paid to overseas agents, except when
paid to countries considered as tax
havens (overall income tax rate lower
than or equal to 20%), in which case the
tax is levied at the rate of 25%.

Exemption from excise tax (IPI),

value-added tax on sales and services
(ICMS), social contribution on billing
(COFINS) and contributions to the social
integration program (PIS) on exports of
manufactured products.

Low-cost export financing.

Other programmes and special customs

schemes may apply. For further
information please see Chapter 8.

Export credit guarantee insurance is provided

mainly by banks through letters of credit
for export transactions. The Instituto de
Resseguros do Brasil (Brazilian Reinsurance
Institute - IRB) also provides this coverage.


Incentives to invest in other

As a general rule, Brazil offers no specific
incentives to individuals and companies
wishing to invest abroad. However, various
benefits are available for investments that
result in greater export revenue for Brazil, as
described earlier in Export incentives.

Foreign-investment incentives and

It is government policy to welcome foreign
investment and investment incentives are
generally available to both local and foreign
investors. No special privileges are given to
foreign investors, but export manufacturing
and import substitution are encouraged.
Several tax treaties have been signed and
others are currently being negotiated; see
Chapter 23 and Appendix V.

Constitutional Investment Fund

The Constitutional Investment Fund was
created to foster national integration through
economic and social development and to
diminish regional differences. The funds
are invested in projects approved and
managed by operator banks in the Central
and Eastern, Northeast and North regions.
These funds are provided to support specific
projects, such as companies setting up in
underdeveloped municipalities, the formation
of regional clusters and forest management,
amongst others.


Doing business

Chapter 5

Restrictions on
foreign investment
and investors

Chapter 5 | Restrictions on foreign investment and investors


Investor considerations

Foreign capital is generally treated the same as local capital.

Foreign ownership of local companies is normally permitted except in

sectors considered to be of strategic importance.

Registration of all foreign investments with the Central Bank of Brazil is


Exchange controls are in place.

Repatriation of capital and earnings is controlled.

Foreign ownership of rural land is restricted.

Regulatory climate
Regulatory authorities
The National Monetary Council (Conselho Monetrio Nacional) is the
exchange control and foreign investment authority. Foreign-exchange policy is
controlled and supervised by the Central Bank of Brazil.

Regulatory legislation
The Constitution outlaws discrimination against foreigners residing in the
country with regard to their basic rights of personal liberty, security and
property ownership, although there are some restrictions on their ownership of
rural land and certain business. Additionally, foreigners may not be employed
by the government on a permanent basis.
Foreign investment is legislated by Law 4131 of 1962 and subsequent
amendments. The exchange control regulations are set out in the rules,
directives and circulars issued by the Central Bank and by the Federal
Revenue Service.



Doing business

Exchange-control and foreign-investment

policies are established by the National
Monetary Council, whose president is
the Minister of Finance. The legislative,
executive and administrative aspects of
these policies are the responsibility of the
Central Bank, which includes a number of
departments specifically concerned with
foreign investment and exchange. They
normally operate by means of internal
directives that are not published. The Foreign
Trade Department (DECEX) of the Ministry
of Development, Industry and Foreign Trade
(MDIC) is responsible for foreign-trade policy,
along with the Brazilian Federal Revenue
Office, which is responsible for establishing
foreign-trade procedures in Brazil.
For many years the overall policy has been
to generate an exchange surplus sufficient
to service the foreign debt and to build up an
adequate foreign exchange reserve.
In general, tight control of foreign-currency
transactions is exercised by the authorities.
The fine for infringing exchange control
regulations is limited to BRL 250,000 and
is imposed by the Central Bank, according
to the regulations issued by the National
Monetary Council. Foreign-currency
transactions may be effected through
authorised financial institutions only.
Foreign currency is exchanged at different
rates, depending on the nature of the
transaction. The official commercial (import
and export) rate is used for most trade and
financial transactions and the Central Bank
may intervene to control this rate. At the
beginning of 1999 the National Monetary
Council decided to liberalise exchange
controls, letting market forces be the
determining factor.
There is also an openly used (although
illegal) parallel exchange market. This rate is
traditionally higher than the commercial rate.

Exchange controls
Inward investment
The general policy is to admit foreign
capital and treat it in the same way as
local capital. However, there are some
restrictions on foreign investment in certain
sectors (see below). All inward investment
must be registered at the Central Bank to
ensure ultimate repatriation rights. There
are no special exchange rates for specific
transactions. It should be noted that
acquisitions of local companies may be
investigated to confirm their substance and
real underlying value.

Registration of foreign capital and


Foreign capital

The basic legal concepts regulating foreign

capital in Brazil are defined in Laws 4131
of 1962 and 4390 of 1964, which were
regulated by Decree 55762 of 1965. The
legal concept of foreign capital includes
tangible and intangible assets.
An important concept in foreign-capital
legislation in Brazil is that which reflects the
constitutional principle (Federal Constitution,
article 5) that guarantees equal treatment to
all. This principle, in Law 4131/62 and later
amendments to the Federal Constitution,
affords foreign capital invested in Brazil
the same legal treatment as that given to
local capital on equal conditions, and any
discrimination not permitted by this law
and subsequent amendments thereto is

Chapter 5 | Restrictions on foreign investment and investors


To qualify for the remittance of profits and to ensure ultimate repatriation rights,
foreign capital entering Brazil must be registered at the Central Bank. Capital
remittances must be registered within 30 days. Foreign capital may take the form
of cash, rights and assets sent to Brazil at fair market value, reinvested earnings,
conversion of foreign-currency loans or current-account balances, liabilities and
others. Reinvested earnings in this context are defined as profits earned in Brazil
on registered foreign capital that have been formally allocated to increase capital.
Capital increases from this source are registered in the currency of the country to
which the profits could have been remitted.
Investments structured as advances for future capitalisation are prohibited by
the Central Bank, except those exclusively related to participation in National
Privatisation Programmes and public service concessions or which have been
specifically authorised by the Central Bank for projects of interest to the Brazilian
The nationality and legal classification of an investor is irrelevant, provided that the
investor resides or is domiciled abroad.
The Central Bank has also recognised that foreign investments directly or indirectly
made in holding companies can be registered under the terms of Law 4131/62.
Prior approval of the Central Bank is no longer required for all foreign-currency
loans received, but they must be documented by a formal contract stipulating the
interest rate; the Central Bank of Brazil has to be informed of all the loan terms,
as approval is granted or refused after the loan transaction has actually been
implemented. The bank may refuse to accept loans which are charged interest
over and above the rates prevailing in the country of origin. The Central Banks
prior approval is also necessary for operations relating to the conversion of certain
liabilities into investment.


Technology transfer agreements, including those involving patents and trademarks,

must be approved by and registered at the National Institute of Industrial Property
(INPI). This approval depends on the necessity of the services to be rendered and/
or availability of the technology within Brazil. In the case of royalties, registration
of the agreement also depends on proof that the related patent or trademark has
been duly registered in Brazil and is still valid. In the case of technical assistance,
the authorities reserve the right to verify that services have been effectively
rendered. A computerised service facilitates the obtainment of information about
registered patents and trademarks and the process of monitoring registration



Doing business

Currency accounts
The use of foreign-currency bank accounts
by local or foreign investors and traders
is generally not allowed (the legislation
makes some exceptions). However, banks
authorised to deal in foreign exchange may
hold local-currency funds for non-resident
individuals or entities. Such bank accounts
may be operated in the name of the nonresidents and are often used to hold blocked
local-currency funds.

Repatriation of capital and earnings

Capital may be repatriated free of tax up to
the amount registered in foreign currency at
the Central Bank. Any excess is considered
a capital gain subject to exchange provisions
and is therefore subject to withholding
income tax of 15 percent (25 percent for
beneficiaries domiciled in jurisdictions
considered to be tax havens).
Profits may be remitted abroad without
limit, up to the registered foreign capital and
available retained earnings. As from January
1, 1996 profits/dividends distributed to nonresident beneficiaries relating to periods
beginning on or after this date are not subject
to withholding income tax.
Loans may be repatriated within the terms of
the registered loan contract. Interest can be
freely remitted within the loan contract terms
subject to withholding income tax at the rate
of 15 percent (25 percent for beneficiaries
domiciled in jurisdictions considered to be tax

Remittances for technology transfers,

including patents and trademarks, also
require the Central Banks prior approval,
which will only be granted if the agreements
have been previously approved and
registered at the INPI. Requests for
remittances that are not seen to be on
an arms-length basis are normally not
approved. Royalty and technical service
remittances are subject to 15 percent
withholding income tax or lower rates based
on tax treaties. A 25 percent withholding
income tax applies should the payment
be made to beneficiaries domiciled in
jurisdictions considered in Brazil to be tax
Exchange currency for imports may be freely
remitted. However, in certain cases, an
import license is required if payment of the
purchase price of the imports is deferred for
varying periods.
Supporting documentation must be
presented for approval of all applications
for repatriations and remittances. Proof
must also be furnished that the applicable
withholding tax has been paid.
Bilateral or multilateral payment netting
deals are generally not permitted. However,
simultaneous exchange transactions may
be carried out based on their net amount,
provided that the respective exchange
contracts relating to the inflow and outflow
of foreign currency are settled on the same
date and have the same parties (in Brazil and
abroad) as creditor and debtor.

Chapter 5 | Restrictions on foreign investment and investors



Guarantees against inconvertibility

Restrictions on foreign ownership

There are no government or similar

guarantees against inconvertibility. Over
the years, however, the regulations related
to repatriations and remittances have been

Restrictions on foreign investment

Except as noted below, 100 percent foreign

ownership of local enterprises and joint
ventures is normally permitted. In general, no
particular types of operation are given special
treatment. A local partner is often advisable
to provide local expertise and contacts.
Joint ventures with Brazilian partners are

Industries closed to private enterprise

The restrictions on foreign investor

participation may be summarised as follows.

The government has powers to operate

directly, through concessions or through
authorisation, a number of activities that
are considered to be a public service or
of strategic importance. In practice, the
federal and state governments tend to
supervise activities transferred to private
control through regulatory agencies
operating in a number of sectors, such
as telecommunications, light and power,
water supply, railroads, coastal shipping,
film industry, oil and gas, healthcare and
health products. Nevertheless, government
intervention has been diminishing over the
past few years.


Government permission is required before a

company can begin operating certain other
types of businesses, such as banks and
financial institutions, mining companies, oil
refineries, maritime, road and air transport
companies and companies involved in health
products and health care.

Such shipping may only be carried out by

Brazilian companies.

Foreign ownership of television, radio

stations or newspapers is restricted.
Foreign ownership of Brazilian airlines is
Classified government contracts:
Foreign participation in classified government
contracts or access to work by other firms on
such projects may be restricted.
Coastal and freshwater shipping:

Mining and hydroelectricity:

Exploration and extraction of mineral
resources and electricity generation may
only be carried out by Brazilian nationals
or entities incorporated in Brazil. These
Brazilian-incorporated entities may be
foreign-controlled except in the frontier zone,
where they must be controlled by Brazilian


Doing business

Other types of restrictions

Direct or indirect foreign ownership of rural land is regulated and subject to
limitations over total area. Ownership of land near Brazils borders is subject
to further restrictions. There are no restrictions on foreign ownership of urban

Policy trends
Effect on foreign investment
The tight exchange and foreign-investment controls remained practically
unchanged for many years, but since 2005 there has been a gradual relaxation of
controls and restrictive and protectionist practices.
There has been a clear preference for foreign companies to establish themselves
through subsidiaries and joint ventures rather than simply exporting to Brazil and
this is likely to continue, although exceptions are made where imports are clearly
cheaper than local goods.

Chapter 5 | Restrictions on foreign investment and investors




Doing business

Chapter 6


Chapter 6 | Regulatory environment


Investor considerations

Business activities are generally regulated.

Prohibitions normally apply equally to local and foreign-owned businesses.

Considerable documentation and bureaucracy are involved in day-to-day


Foreign-exchange transactions are controlled.

Stock markets are active and reasonably developed, but stock ownership is
not widespread.

Patent, trademark and copyright protection is available.

Regulation of business
The main regulatory agencies concerned with business activities are the following.

Central Bank (BACEN): Responsible for the implementation of monetary

policy, exchange controls, registration and control of foreign capital and profit
remittances and the regulation of banks and financial institutions.

Securities Commission (CVM): Responsible for the securities markets and

listed companies.

Administrative Council for Economic Defence (CADE): Responsible for

investigating and suppressing unfair business practices, and antitrust

National Institute of Industrial Property (INPI): Responsible for patent and

trade mark registration and technological development. INPI has power over
technology transfer agreements.

Foreign Trade Department (DECEX) of the Bank of Brazil: Responsible for

administration of foreign trade and control of export and import licenses.



Doing business

Competition policy
In general, competition is encouraged, except in certain sectors where there are
restrictions on foreign investment and investors.

Price controls
Currently, the prices of services rendered may be adjusted for inflation on a yearly
basis using an index that properly reflects the weighted variations of imputed costs.
Furthermore, several government agencies are responsible for price controls in
special areas, e.g., the National Telecommunications Regulatory Agency (ANATEL)
for telecommunications, despite the concession agreements. Control is exercised
in various ways, depending on the industry or product involved and the general
economic situation.

Monopolies and antitrust

CADE, a government agency, is responsible for suppressing the abuse of
economic power. It may investigate and punish trusts, cartels and monopolies,
either at its own initiative or at the request of third parties. Members of CADE are
appointed by the President.
The Antitrust Law (Law 8884/94) contains wide-ranging regulations in defence of
free-market competition. The Economic Law Department (SDE) is charged with
enforcing these regulations. Cartel, monopolistic and oligopolistic situations in
various sectors are constantly challenged.
In general, there are no special restrictions on foreign investment.

Acquisitions and mergers

Except as stated in Chapter 5, there are no restrictions on acquisitions and
mergers by foreign investors and the procedures are relatively simple. Central
Bank permission is required when financial institutions are involved.

Chapter 6 | Regulatory environment



Securities markets
The Central Bank and the Securities
Commission (CVM) are the main regulatory
agencies concerned with the financial and
securities markets. The main stock exchange
is in So Paulo.
The CVM has stated that its policy is not to
discriminate against foreign investors, but
to treat them in much the same way as local
A public securities issuance, including
debentures, may not be made without prior
registration at the CVM, which will normally
require adequate disclosure of information
to safeguard investor interests. Furthermore,
only securities issued by companies
registered at the CVM may be traded on
stock exchanges and over-the-counter
The preparation and approval of a
registration statement can be very timeconsuming, but once securities have been
registered a listing for trading may usually be
obtained without undue difficulty.
Companies registered at the CVM and
whose securities are traded on a stock
exchange are required to file periodic reports
and to report significant developments.
These reporting requirements also apply
to companies whose stock is sold in the
secondary over-the-counter market.
A cash tender offer can be made more
quickly and with considerably less formality
than the CVM registration process. Certain
information must be submitted to the CVM
and the rules for cash tender offers must be

Several requirements must be fulfilled in

order to be listed on the stock exchanges.
For example, previous audited financial
statements and other detailed information
must be submitted. In addition, the particular
securities for which a listing is being sought
must have a sufficiently wide distribution
to offer reasonable assurances that an
adequate market exists. When applying
these criteria to individual cases, the stock
exchanges have developed minimum
numerical standards for evaluating applicants
for listing.
The over-the-counter market handles
securities of publicly held companies that
have not applied for listing on the stock
exchanges. The procedures for purchase
and sale of stock are more informal and
are generally handled by over-the-counter
brokers who establish the bid and asking
price for specific issuances.
Following the recent introduction of
accountability and corporate governance
regulations, the stock exchange has created
different levels of corporate governance,
which require better practices and minimal
additional rights for investors.
Reporting and disclosure requirements are
described in Chapter 11.


Doing business

Imports and exports

Pollution control

All importers and exporters must be duly

registered at the Foreign Trade Department
(DECEX) and the Federal Revenue Service
(RFB). For details on import restrictions
and duties see Chapter 8. Exports
are encouraged by several incentives
summarised under Export incentives in
Chapter 4. Normally there are no restrictions
on exports. However, licenses are generally
required for both imports and exports.

Pollution has become a serious problem in

several areas and is consequently now one
of the main issues on both the political and
the economic agenda. Federal and state
governments have developed programmes
and controls to prevent or reduce pollution,
mainly in the more industrialised areas.
The treatment of industrial residues and
waste to avoid and reduce pollution must be
considered when setting up new plants.

Consumer protection

Ecological preservation is a subject of public

interest and often covered by the local and
international press.

The 1990 Consumer Defence Code

considerably strengthens customer rights.
The Ministry of Health maintains control over
pharmaceuticals and cosmetics produced in
the country or imported. Specific registration
of laboratories and laboratory products
is required before new products can be
launched in the market. Pharmaceutical
companies require a special license.
There are also various agencies concerned
with standards, quality and supply of
foodstuffs including imported products, and
specific regulations on weights and measures
that must be observed by the consumer
products sector.

The Brazilian Environment and Renewable

Natural Resources Institute (IBAMA) is the
federal agency in charge of establishing
the general criteria for pollution control.
Other agencies are required to take IBAMA
regulations into account when examining
applications for incentives and financing of
investment projects. Pollution control is the
responsibility of the states and municipalities.
Noncompliance with environment control
regulations may result in the suspension of
tax benefits, credit restrictions or even the
closing down of operations.
Over the last couple of years, sustainability
issues have been gaining importance and
become a part of corporate concerns.

Chapter 6 | Regulatory environment



Special industries


There are specific regulations affecting

the operations of financial institutions, as
noted in Chapter 7. The same applies to the
insurance sector.

A patent of invention lasts 20 years and an

industrial model or design lasts 15 years as
from filing the application with the National
Institute of Industrial Property (Instituto
Nacional de Propriedade Industrial - INPI).
Ownership of patents is transferable. Patent
holders in other countries with which Brazil
has treaties or conventions covering such
matters have priority rights for filing patent
applications within the periods specified.

Licenses are required from the National

Department for Mineral Prospecting (DNPM)
in order to proceed with mining operations.
The Software Law (Law 9609/98) defines
software and deals with the protection
of intellectual software property and the
marketing of software in Brazil, as well as the
registration of technology transfer contracts.
Law 8955/94 regulates franchising activities
in Brazil. Franchising agreements are valid,
regardless of registration. If technology
transfer is involved, the respective
agreements must also be registered at the
INPI and the Central Bank in order to support
remittances abroad.

Patents, trademarks and copyrights

Law 9279/96 provides special protection for
intangible industrial property, which includes
patents, trademarks and industrial drawings.
There is also legal protection against video
and audio piracy.
Penalties for patent and trademark
infringement include confiscation of goods,
imprisonment and fines as well as the
payment of losses and damages.

Trademarks and trade names

Trademarks are registered at INPI and
trade names at the local Board of Trade
(Junta Comercial). There are a number of
restrictions regarding trademarks, which
are stipulated in the Industrial Property
Code (Cdigo de Propriedade Industrial).
Registration is valid for ten years and may be
renewed for similar periods indefinitely.

Industrial Drawings
Registration is valid for ten years and may be
renewed three times for five years each time.
Registration is also transferable.

Copyrights are legally protected by
agreements, conventions and treaties in
force in Brazil. The country is also a signatory
of the Berne Convention for the protection
of artistic and literary works, the Paris
Convention for the protection of industrial
property, the Washington Patent Cooperation
Treaty, and is a member of the World
Intellectual Property Organisation


Doing business

Chapter 7

Banking and

Chapter 7 | Banking and finance


Investor considerations

A wide range of credit and financial services is available from an extensive

banking and financial network.

Institutional financing is available for foreign trade.

Banking and financing business is regulated by the Central Bank.

Banks and financial institutions are under strict government supervision of

operating and accounting matters.

Banking and finance system

National Finance System
The National Financial Systems (SFN) functional structure is formed by the
normative system, which congregates the normative and supervisory entities,
and the operative system, formed by financial institutions and other institutions
authorised to operate by the Central Bank, subsidiary bodies and enterprises
regulated and monitored by other supervisory authorities.
The regulatory and supervision entities are the:

National Monetary Council (Conselho Monetrio Nacional - CMN):

Oversees the financial system as a whole.

The Councils Members are the Minister of Finance (president of the CMN), the
Minister of Budgets and Planning and the president of the Central Bank.

Central Bank (BACEN):

Carries out traditional central banking functions and implements CMN policies.

Private Insurance Regulator (SUSEP)

Responsible for the supervision of the insurance industry

Complementary Pensions Department (SCP):

Responsible for the supervision of the complementary pension industry



Doing business

Securities Commission (CVM):

Responsible for the capital markets and asset-management industry.

The Central Bank is the entity responsible for controlling and monitoring: lending
and capital limits, compulsory deposit levels, interest rates, accounting procedures,
foreign investment and the foreign-exchange market, among other activities. The
entities that operate in the financial market can be controlled either by government
or private institutions. The main government institutions are the following:

National Bank for Economic and Social Development (BNDES):

Implements the governments investment policy, granting loans and supervising

government financing plans. It is also responsible for managing the National
Privatisation Program.

Bank of Brazil:

A mixed-capital federal company, this is the governments financial agency and

handles all federal receipts and payments. It is also a commercial and agricultural

Federal Savings and Loans Association (CEF):

A savings and mortgage bank, which also administers the FGTS (Employee
Severance Indemnity Fund), PIS/PASEP (Social Integration Taxes) and the
national lotteries.
The major banks in the private sector have long been organised as financial
conglomerates, able to offer a full range of financial services through subsidiary
and associated companies as well as associations and mergers with foreign
financial institutions. The major banks are considered to be sophisticated and
competitive and offer a broad range of financial services, operating on-line.
The Brazilian Financial System can be summarised as follows (Source: Central
Bank of Brazil website):

Chapter 7 | Banking and finance


Regulation and
Supervision Entities

that receive

Commercial banks

Other financial

Multiple or universal banks without a

commercial bank portfolio


Multiple banks

Savings banks
Credit cooperatives

Investment banks
Development Banks

Consumer finance companies

Central Bank of

Savings and loan companies

Mortgage companies
Development Agencies
Savings and loan associations


Micro-entrepreneur Credit Company

Other financial
or auxiliaries

Commodities and futures exchanges

Stock exchange
Securities brokers
Securities dealers
Leasing companies
Exchange brokerage companies


Representatives of Foreign Institutions

Independent agents for investments
and pension

Private open pension funds

Insurance companies
Capitalisation companies


Private closed pension funds

Health insurance management companies


Mutual investment funds

Investment clubs
Foreign investors portfolios
Consortium managers for self-acquisition of
durable consumer goods and services

and clearing

Special system for liquidation and custody of

government bonds - SELIC
Centre for the custody and financial
settlement of private issuances - CETIP
Stock exchange clearing system


Doing business

Banking sector
The Brazilian banking sector is strong,
diversified and adequately capitalised. Its
high levels of capitalisation and modern
corporate governance have allowed it to
deal with the recent global credit crunch
proficiently. Despite the economic slowdown,
credit as well as bank deposits have
continued increasing and are also expected
to maintain the current rate of growth in the
years ahead.
The banking sector offers diversified
structured products for wealth management
investors, asset management products
and insurance products (life insurance and
private pension programs) as well.
Commercial banks engage in both wholesale
and retail banking and are the primary
source of short- and medium-term financing.
Financing loans are available to foreigncontrolled companies.
Foreign loans are a frequent source of
medium- and long-term financing. These
loans may take two forms:

Direct loans from the foreign creditor to

the Brazilian borrower.

On-lending by a Brazilian bank of loans

obtained by it from foreign banks. These
loans generally have shorter terms than
the direct foreign loans.

In recent years there has been a marked

increase in the volume of foreign on-lending
loan agreements and an increase in the
foreign investment coming into Brazilian as

In addition to granting loans, commercial

banks provide a wide range of financial
services, such as accepting deposits,
paying cheques, issuing letters of credit,
dealing in foreign exchange, cash and asset
management services, electronic transfers
of funds, investment banking services and
investment management.
Investment banks provide a valuable
service to both local and foreign investors
interested in acquiring medium- and longterm financing. With the assistance of an
investment bank, a foreign investor may be
able to obtain long-term financing through the
sale of stock or debt obligations in the public
market or through private placement, as well
as performing M&A transactions.
Several prominent foreign banks have
subsidiaries in Brazil. In addition, many
foreign banks have representative offices to
provide various services to the home office
and its customers.
Foreign banks have played an important
credit role in lending to local companies.
However, under the 1988 Constitution, the
conditions for foreigners to acquire a capital
interest in banks must be regulated by a
complementary law which has not yet been
enacted. Until these conditions have been
established, authorisation for the installation
of new foreign-controlled banks and for any
increase in existing foreign capital interests
are subject to special authorisation. In recent
years, there has been a noticeable increase
in the acquisitions conducted by foreign
entities in the financial sector companies
(broker houses, custody companies and
even small- and medium-size banks).

Chapter 7 | Banking and finance


Specialised financial institutions

Financial markets

There are various types of nondepository

financial institutions in Brazil, including
leasing companies (arrendamentos
mercantis), finance companies
(financeiras) and savings and loan
associations (crditos imobilirios).

Securities markets

Lease finance is readily available from

leasing companies. Finance companies
provide funding, generally secured by
equipment, automobiles and consumer
durables. They include subsidiaries of large
manufacturing or retail companies and
provide consumer financing to facilitate sales
of products. Due to the higher risks and cost
of funds, finance companies charge higher
interest rates than commercial banks.
Factoring is also available.


Under the development of the stock market

in Brazil, from the year 2000 onwards
regional stock exchanges had to transfer
their stocks to the Brazilian Mercantile &
Futures Exchange (BM&F) and to the So
Paulo Stock Exchange (Bovespa).
In 2008 BOVESPA S.A. - Securities,
Commodities and Futures Exchange was
created by merging BM&F and Bovespa.
Together the companies have formed one of
the largest exchanges in the world in terms
of market value, the second largest in the
Americas, and the leading exchange in Latin

Savings and loan associations accept

deposits from individuals and provide
financing secured by real estate and other
assets to companies and individuals.

Among its broad range of trading products,

the new Exchange offers equities, securities,
financial assets, indices, interest rates,
agricultural commodities, foreign-exchange
futures and spot contracts.

Investment institutions

For further information about the secondary

or over-the-counter markets please see
Chapter 6.

Investment institutions other than investment

banks include insurance companies, pension
funds and investment and mutual funds. The
insurance industry is regulated and there
are strict controls over investment policies.
However, insurance premiums and types of
risks covered are now influenced by market
conditions. Private and public pension plans
have grown significantly during the past few
years. Pension funds generally invest in
common and preferred stocks, corporate and
government debt securities, real estate and
mortgages. There are a wide variety of other
funds entitled to invest in Brazilian equities
and government bonds, including foreign
investment funds. Brazilian investment funds
were recently allowed to invest in overseas
investment funds.


Doing business

Sources of funds
Local financing
The various forms of local financing available are briefly discussed above. The
following sources are also of interest:

Some programmes offer low-cost financing. These include working capital for
small and medium-size businesses, purchase of capital equipment produced
in Brazil (FINAME), export financing and rural credit.

Low-cost export financing is available, principally in the following forms:

Advances against foreign-exchange export contracts.

Advances against foreign-currency export receivables.

Subsidised interest for the financing of production for export, based on

past export history and export potential.

Export financing does not normally exceed 360 days. Various other forms of
special financing are available for exports, some of which are directed to special

Availability to foreign investors

There are generally no restrictions on the access of foreign-controlled companies
to local private-sector financing in Brazil and on their ability to invest in government
securities and in listed companies.
A foreign investor has access to the Brazilian securities market through registered
Brazilian investment funds. See Portfolio investments in Chapter 16 for further

Chapter 7 | Banking and finance




Doing business

Chapter 8

Exporting to

Chapter 8 | Exporting to Brazil


Tips for exporters

Import duties are set according to the governments interest in promoting or

protecting the local market and its foreign-trade balance.

Trade barriers used to be wide-reaching, but are now being relaxed gradually.

Exporters to Brazil should seek advice from local trade and tax consultants
before shipment.

Having a local agent is advisable in order to obtain quicker customs


Related-party sales may need special attention with regard to pricing.

Duty deferrals are available by using customs bonded warehouses/special tax


Customs valuation assessments have increased in recent years.

Import restrictions
For many years Brazils foreign-trade policy was to reduce imports and encourage
exports. Therefore, certain classes of imports are subject to high import duties and/
or import quotas. However, the government is slowly reducing trade barriers and
import duties.
In addition to customs requirements, imports are also subject to the laws and
regulations of other government agencies with which the Customs authorities
cooperate in enforcement. These may, for example, prohibit or limit entry to certain
ports, restrict routing, storage or use, or require treatment, labelling or processing
as a condition of release. Customs clearance is given only if these additional
requirements are met. This applies to all types of imports.
Foreign exporters should make certain that the Brazilian importer has provided
proper information to the Custom Authorities in order to permit the verification of
said information in relation to the products actually shipped and authorise the entry
of the merchandise into Brazil.
Prohibited imports include certain narcotics, obscene, immoral and seditious
matter, and certain herbicides.
A few goods are subject to import licenses or permits. Import licenses are
controlled by DECEX, the Brazilian Foreign-Trade Department, and the respective
government body. Imports are not normally limited by absolute annual quotas,
except for certain goods; however, actual imports are monitored against those



Doing business

Import duties
Customs duties
Import duty (imposto de importao - II)
is generally levied on an ad valorem basis
on the CIF value of the product. The invoice
value is usually taken as the basis for
determining the normal price, but in order to
protect local products or to tax nonessentials
heavily the Tariff Policy Council may establish
minimum import values or base prices or
apply specific tax rates. The maximum import
duty is currently 35 percent. The essentiality
of goods is the main criteria used to set the
ad valorem rates.
Overall, the import tariff schedules contain 21
sections and 99 chapters, comprising more
than 10,000 classifications. Tables classifying
the goods subject to duties and tariffs are
established by decrees and are published in
the Common External Tariff (TEC). Changes
are frequent.
Exemptions or reductions in import duties are
granted from time to time to certain industries
or enterprises considered of particular
importance to the Brazilian economy,
depending on the region where they are
established, the nature of the goods, the
resultant increase in the utilisation of locally
produced material, etc. Duties may also be
suspended on goods imported for re-export,
for further processing prior to export or for
use in preparing other products for export.
Exemptions or reductions are also granted
temporarily when there are shortages of food
products and essential raw materials or local
prices are deemed to be abusive.

Mail-order imports of up to USD 3,000

are subject to a 60-percent import duty.
Exemptions are granted in the case of
medicine and imports under USD 50,
provided they are between individuals or
are for the individuals own use. Alcoholic
beverages and smoking products do not
benefit from this import scheme.
Import duties must be paid before customs
clearance is given.
Manaus, in the Amazon region, is the largest
free-trade zone currently authorised in Brazil,
and imports into this area are duty-free
provided they are consumed within the zone
or exported (see Chapter 4).
Export processing zones and special freetrade areas have been created to develop
certain less-developed and frontier regions,
but to date most of them are not operational
(also see Chapter 4).
See also Overseas trade relations in
Chapter 2 for details of membership in trade

Other taxes and duties

In calculating import costs it should be noted
that, with a few exceptions, federal valueadded excise tax (IPI) and contributions
(PIS and COFINS) are levied on imports.
The state value-added sales and services
tax (ICMS) is also payable on imports. For
details of these taxes see Chapter 22. A
further import cost is the AFRMM charge,
which is levied at 25% based on the amounts
paid for international ocean freight, the
proceeds of which are to be used for the
renewal of the Brazilian merchant marine.
Port and dock taxes and charges are high by
international standards.

Chapter 8 | Exporting to Brazil



Documentation procedures
All importers must be registered at SECEX
and the tax authorities in order to be able
to operate in Brazil. Some products may
require special import licenses. If a license
is required, automatic licensing may be
obtained for certain products as well as
under the drawback scheme. Non-automatic
licensing is required for imports of used
goods, imports under special concessions,
goods subject to governmental control or
tax incentives and others. Imports may
be performed either through fully prepaid
letters of credit, which can be financed by
local banks, or through credit arrangements.
Terms longer than 360 days are subject
to special procedures associated with
documents attached to the import process.
The following is a brief summary of the
documentation procedures:

Filing of the application for a nonautomatic import license, when

applicable, before the goods shipment,
which should include the required
general information concerning the
importer, exporter, manufacturer, country
and port of origin, port of unloading,
description of the merchandise,
FOB price in foreign currency, and
supplementary documents as required
(these documents do not have to be filed
in advance for automatic import licenses
and imports which do not require

Payment of the application fee.

Issue of the import license.

Completion of the import declaration,

which is the base document for customs
clearance, containing all data related to
the respective import, including duties
and taxes incurred. This should be done
after arrival of the merchandise but
before customs inspection.

The inspection procedures are

determined by the type of inspection
defined by the customs authoritys
system (green, yellow, red or grey
channel). For instance, the green
channel requires no inspection,
the yellow channel requires only
documentary inspection, the red channel
requires physical and documentary
inspection and the grey channel requires
physical and documental inspection,
as well as special customs procedures,
including price control.

Customs clearance then finally takes place.

Other formalities may be required in certain
cases, mainly for imports which are granted
special concessions or tax incentives.
Transport in Brazilian vessels may also be

Customs and storage

Although customs and storage facilities could
be improved, in general they are secure.


Doing business

Port of entry and inland transport

Anti-dumping measures

Generally, the port of entry chosen by the

importer is honoured. Inland transport is
mainly carried out by lorries and HGVs and
may pose problems at times of seasonal

Law 9019/95 and Decree 1602/95 lay down

the anti-dumping measures. Dumping is
defined as the entry of a product into the
local market (including under drawbacks) at
a price lower than its normal price. If entry is
considered a threat to the local market, antidumping measures are employed.

Special Customs Schemes

Drawback incentives may be in the form
of suspension, exemption or refund of
duties and taxes levied on imported items
that are subsequently re-exported. The
refund of taxes varies, depending on the
circumstances. All re-exports are regulated
by SECEX. The addition of a certain
percentage of local content is necessary.

Local representation

Other Tax Programmes

Due to the bureaucratic documentation

procedures and the language barrier
frequently encountered, it is recommended
to use a local customs agent or broker. They
are particularly useful in dealing with the
Customs and Tax authorities.

Brazil has several special customs schemes

intended to boost exports. These tax
programmes provide benefits in the form of
exemption, suspension and refund of taxes
levied on imported products or on locally
purchased products, provided the goods are
subsequently exported.
Brazils special customs regimes include:
Drawback, Temporary Import, Bonded
Warehouse and Temporary Export etc.
A special program called Blue Line is
also available, based on the international
concepts of the AEO Authorised Economic
Operator. This program promotes voluntary
compliance with customs obligations by
offering preferential treatment in customs
clearance procedures for import, export and
transit transactions.

Market surveys
Before initiating significant exports to Brazil,
it is advisable to survey existing and potential
markets for the particular product or service.

Local agents

There are generally no problems in retaining
the services of employees or sales staff,
provided they do not hold binding powers
(see immediately below).

Chapter 8 | Exporting to Brazil


Sales agents or subsidiaries

As discussed under Imports in Chapter 16, products shipped to Brazil and
invoiced directly by the foreign supplier to its customer in Brazil are only subject
to Brazilian corporate income tax, if the sales agent or representative domiciled
in Brazil, who acts as an intermediary, has the authority to bind the overseas
seller contractually. However, if the agent does have such binding powers income
taxes are calculated on the deemed profit, based on a percentage of gross
income (which varies depending on the activity), plus an additional surcharge of
20 percent. It is accordingly advisable for the formal representation agreement to
expressly preclude the sales agent or representative from contractually binding the
overseas principal in any sales contract.
A sales subsidiary in Brazil may be established and is subject to the same taxes as
any other local company.

Sources of information
Commercial departments of Brazilian embassies and consulates abroad may
provide information and assistance.
In Brazil, the following organisations provide assistance:

The Commercial Promotion Section (Seo de Promoo Comercial) of the

Ministry of Foreign Affairs, in Braslia.

Chambers of commerce.

Industry associations.



Doing business

Chapter 9


Chapter 9 | Business entities


Business entity guide

Choice of entity

The most common corporate forms used by local and foreign investors to set
up a legal entity are the corporation (sociedade por aes) and the private
limited-liability company (sociedade limitada), usually called a limitada.

Capital requirements

In general, corporations and limitadas may be wholly foreign-owned

All foreign investments must be registered at the Central Bank of Brazil

There are no legal minimum capital requirements except for financial

institutions, and certain other legal entities with specific business purposes.
There is no upper limit.

Founders requirements

The number of quotaholders for a limitada may not be less than two (legal
entities or individuals), which may be Brazilian or foreign. Corporations may
have just one shareholder, as long as the sole shareholder is a Brazilian legal
entity (incorporated under the laws of Brazil). In the event the corporation
has more than one shareholder, they may be Brazilian or foreign (legal
entities or individuals). In the event of a foreign quotaholder or shareholder,
a representative domiciled in Brazil (individual) must be appointed in order to
receive court summons, subpoenas and/or notifications of their behalf.

It is usually more complex to form and run a corporation than a limitada.

Foreign ownership participation in management

Ownership, management control and transfer are more flexible in a


There are no nationality requirements for management, but a foreigner must

hold a permanent visa and be domiciled in Brazil.

Union and employee participation in management is an increasing practice.



Doing business

Repatriation of funds

Liquidating an investment

Dividends remitted to non-resident

shareholders or quotaholders are not
subject to any withholding tax. However,
distributions from earnings or profits
related to periods previous to December
31, 1995 are subject to withholding
income tax at the rate of 25 percent or
15 percent, depending on the year they
refer to.

The withholding tax rate on interest and

certain other remittances is generally
15 percent or lower rate determined in

The withholding tax rate on the

remittance of service fees is generally
15 percent.

The initial investment may be repatriated

upon sale of shares or quotas to a
resident free of tax. Capital gains,
however, are subject to taxation.

Capital gains on the sale of shares or

quotas may also be remitted abroad,
subject to payment of income and/or
capital gains taxes, normally at the rate
of 15 percent.

Payments to a beneficiary resident in

a country or location considered to be
a tax haven are generally subject to 25
percent withholding income tax.

A foreign shareholder or quotaholder

may liquidate their investment at any
time by selling their shares or quotas
or upon liquidation. It should be noted
that in order to repatriate investment
upon liquidation, the local company
must register the corporate dissolution
act at the Board of Trade previously. It
must present debt clearance certificates
to this registry relating to labour/
employment, tax and social security

Tax considerations

All legal entities are treated equally for

tax purposes.

Basic income tax rates are the same for

local and foreign-owned companies.

Tax losses including the prior years

accumulated tax losses may be carried
forward indefinitely. However, the use
of tax losses is limited to 30 percent of
each years taxable income and there is
no carry-back.

Professional advice

It is advisable to retain professional

advice at an early stage to ensure
a smooth set-up and regulatory

Chapter 9 | Business entities


Statutory audits are only required for publicly traded corporations, entities
operating in the banking and financial sector, insurance companies, and for
closed-capital corporations and limitadas considered to be large companies
(sociedade de grande porte), under the terms of law (company or group
of companies under common control with total assets worth more than R$
240,000,000.00 or annual gross revenue higher than R$ 300,000,000.00).

Detailed checklists of considerations in setting up in Brazil and in structuring an

investment are given in Appendices XIV and XV, respectively.

Corporate forms for business enterprises

The corporate forms for business enterprises, as well as those adopted by legal
entities that provide professional services, are governed by the Civil Code. The
only exceptions are corporations, incorporated partnerships (sociedade em
comandita por aes) and mixed corporations (sociedades de economia mista),
which are governed by corporate legislation (Law 6404/76). On a subsidiary basis,
the Civil Code governs corporations and incorporated partnerships.
The corporate forms in which a business may be conducted are:
1. Corporations (publicly held or closely held):
This legal entity (sociedade por aes), commonly known as an S.A., most
closely resembles a corporation in the United States and other countries and a
public limited company (PLC) in the United Kingdom. It is the only corporate form
that can have its stock publicly traded.
2. Limited-liability companies:
A private limited-liability company (sociedade limitada), commonly known as a
limitada (Ltda.), resembles a closely held company in the United States and a
private limited-liability company in the United Kingdom.
3. Mixed-capital companies:
This legal entity (sociedade de economia mista) is owned by the government as
well as investors from the private sector, with the government having the controlling
interest; it takes the form of a corporation.



Doing business

4. Partnerships:
a. General partnerships:

This type of partnership (sociedade

em nome coletivo) and those
referred to below, except for
regulated professional partnerships,
are formed for business purposes.
All partners (individuals only)
have unlimited-liability and may
take part in management. Only
the partnership can be declared

b. Special partnerships:

This type of partnership (sociedade

em conta de participao) is
formed to carry out one or more
specific business ventures.
The special partnership is an
unincorporated entity and thus
has no legal identity. It is in effect
a participation account registered
in the books of one of the partners
(the partner who represents the
partnership before third parties).

c. Limited partnerships:

This type of partnership (sociedade

em comandita simples) comprises
two or more partners of two types:
quotaholders with unlimited (active)
and limited (passive) liability. The
partners with unlimited-liability may
only be individuals.

d. Incorporated partnerships:

This partnership (sociedade em

comandita por aes) comprises
at least one managing shareholder
who has unlimited-liability and
limited shareholders whose liability
is limited to the invested capital,
regardless of whether it has
been paid up. This partnership is
governed by a special provision in
corporate legislation.

e. Regulated professional

This entity (sociedade simples)

is a partnership formed by certain
qualified professionals to render
professional services. It is normally
used by doctors, dentists and

5. Joint ventures:
A joint venture may be set up in several
ways, but is always incorporated under
one of the corporate forms set out in item 4
6. Branches of a foreign company:
Due to the extremely bureaucratic
requirements associated with the creation
and maintenance of a branch of a foreign
company, only a very limited number of
multinationals operate in Brazil under this

Chapter 9 | Business entities


Foreign enterprise entities

One of the first decisions encountered
by foreign enterprise entities undertaking
direct investment in Brazil is whether to
incorporate the business as a corporation
(sociedade por aes) or a private limitedliability company (limitada); and whether to
operate as a subsidiary of the foreign parent
company or as a branch. The overwhelming
majority of direct foreign investors choose
the subsidiary form of operation based
primarily on the insulating effect that
incorporation has on the liability of the
foreign parent company for the subsidiarys
acts. The need to obtain local financing may
also influence the decision to operate as a
The tax considerations of subsidiary versus
branch operations are discussed in
Chapter 16.

Organisation and incorporation
A corporation (sociedade por aes,
usually abbreviated to S.A.) whether
publicly or closely held, is organised and
incorporated in accordance with Law
6404/76. If the corporation is or becomes
a publicly traded corporation it is also
subject to Law 6385/76 and the normative
rulings enacted by the Brazilian Securities
Commission (Comisso de Valores
Mobilirios CVM). A corporation may have
authorised capital. An authorised capital
corporation may increase its capital up to the
limit established in its bylaws, by resolution
of the board of directors, without complying
with the formalities normally required, such
as an amendment to its bylaws.


Approval of bylaws
An inaugural meeting of prospective
shareholders must be held to approve
the bylaws, which enumerate the
corporations core activities and elects
management, confirms the capital,
registered office and distribution of
shares (as per the subscription list),
amongst others. The incorporation of a
corporation depends on compliance with
the following preliminary requisites.

Subscription of all the shares into

which the corporate capital stock
is divided according to the bylaws.
The initial subscribers must be at
least two individuals or legal entities
that are considered to be founders.

Payment of at least 10 percent of

the issuance price of the shares
subscribed in cash, unless specific
legislation requires a higher
percentage, and deposit thereof at
a bank within five days of receipt.
This deposit is released when the
corporation has been registered
at the Board of Trade (Junta
Comercial) or after six months if no
registration is made.


Doing business

Private subscription
Corporations are incorporated by private
subscription and can subsequently
have their securities publicly traded.
Incorporation by private subscription and
subsequent transformation into publicly
held corporations requires the following:

Registration of the corporation as

a publicly held corporation at the
Brazilian Securities Commission

Registration of the proposed

issuance of shares or share
trading at the Brazilian Securities
Commission (CVM).

Intermediation of a financial
institution for the issuance or
trading of shares.

In recent years, the initial public offerings

(IPOs) of Brazilian corporations have
played an important role in business
financing, and have been responsible for
the growth and consolidation of the Brazilian
capital market.

General meeting of subscribers

When all the corporate capital has been
subscribed, the founders must call a
general meeting to:

Procure the appraisal of any assets

contributed by shareholders as
payment of subscribed capital.

Approve the incorporation.

A quorum of subscribers of at least one half

of the capital is required for the meeting to
approve the incorporation of a corporation.
If this quorum is not reached, a second
meeting may be held before any number of
subscribers. At either of these meetings the
bank deposit receipt relating to payment of
10 percent or more of the shares issuance
price must be read out and the proposed
bylaws discussed and voted on, where
each share entitles the holder thereof to
one vote, regardless of share class or type.
The majority is not entitled to amend the
proposed bylaws and the corporation will not
be incorporated if they are not accepted.

Election of management bodies

Upon approval of the bylaws the

shareholders shall elect the members of
the management bodies. At the end of the
meeting, the minutes should be read out for
the subscribers approval. After being read
and approved, the meeting minutes must
be signed by all subscribers in attendance
or by the number required to validate the
resolutions. The minutes must be kept at
the corporation (recorded in the Corporate
Shareholders Meetings Minutes Book), and
a copy certified by the chairman and/or the
secretary of the meeting must be filed at the
Board of Trade.


A newly incorporated corporation acquires

legal existence upon filing its incorporation
documents at the Board of Trade and the
subsequent publishing of this meetings
minutes in a newspaper published in the
location of its registered office and in the
Official Gazette (Dirio Oficial). The
certificate issued by the Board of Trade
confirming the filing of the incorporation
documents serves as a legal document
for the transfer of assets used to pay in
the capital and becomes a matter of public

Chapter 9 | Business entities


The first officers elected at the inaugural

meeting are legally responsible for the new
corporation from its inaugural meeting until
the required documents have been filed.
They are also liable to the corporation for
losses caused by late performance of the
incorporation formalities. The corporation is
not liable for the conduct of its initial officers
until all required formalities have been
complied with, unless the minutes of the first
general meeting stipulate otherwise.
A minimum of thirty days would be
required to complete the incorporation by
private subscription. Corporations are not
incorporated directly as publicly held entities.
The normal practice is to apply for listing after
the corporation has started doing business.
Based on the complexity of the statutes and
capital structure, the cost for organising and
incorporating a corporation varies, but for a
closely held entity the related costs would not
be less than USD 10,000.

Capital structure

Share capital

There is no minimum share capital

requirement for a corporation, except
for financial institutions and insurance
companies. Share capital must be stated in
local currency and may be paid in cash or by
credit assignment and/or any type of asset.
The monetary value of an asset should be
based on an appraisal report which must
indicate the criteria and comparative data
used to formulate its conclusions, to be
approved by the shareholders at a general
meeting. Shareholders using assets to pay
in capital may accept or reject the amount
approved by the other shareholders.


All shares are nominative and may be issued

with or without par value. The issuance of
common shares with no par value would
not preclude the issuance of one or more
classes of preferred shares with a par
value. However, when common shares are
assigned with a par value, all classes of
shares must have the same par value. The
shares of a publicly held corporation may not
be issued at a price below their assigned par
value and the minimum value established by
the CVM.
In general, corporations have at least two
shareholders. The CVM may require a
minimum number of shareholders in order to
award listed status and may also establish
a minimum par value. There is no statutory
maximum number of shareholders.
Both common and preferred shares must be
nominative and evidenced in the registered
book (book-entry shares). The issuance
of bearer shares is prohibited. The right to
conversion between types depends on the
Share ownership and transfer can be
evidenced by:
1. Recording the name of the shareholder
in the Nominative Shares Register
Corporate Book; or
2. Registration of the shareholders name
by a financial institution that renders
services of keeping and custody of the
Nominative Shares Register Corporate
Book and Corporate Nominative Shares
Transfer Book.
3. In both cases, the shares are legally
classified as being registered (bookentry share).


Doing business

Share classes

A corporations capital may consist of

common and preferred shares. Corporate law
also provides for the issuance of founders
shares (partes beneficirias, best translated
as profit sharing rights), since they carry
the right to participate in net income without
forming part of the capital.
The law permits closed-capital corporations
to create more than one class of common
shares. These may be distinguished by the

The right to be converted from common

into preferred shares.

The requirement that the shareholders

should have Brazilian nationality.

Special voting rights for election to

certain management positions.

The law requires the unanimous approval of

all shareholders affected by any modification
to classes of shares, unless the bylaws
provides otherwise.

Receipt of dividends and reimbursement

of capital

Privileges, generally priority in the receipt

of dividends and reimbursement of capital
with or without premiums, and restrictions
attached to preferred shares must be
specified in the bylaws and follow corporate
law. For example:.

1. Dividends, including fixed and

cumulative dividends, may not be
distributed in detriment to the corporate
capital, unless this is expressly stated
in the bylaws in the event of the
corporations liquidation. However, the
law does allow the bylaws to authorise
preferred shareholders to receive
cumulative dividends paid out of capital
reserves arising from:
a. Premiums on issuances of shares
and debentures.
b. Proceeds from the sale of
subscription rights and founders
shares (partes beneficirias).
2. Except for those entitled to fixed
dividends, preferred shareholders
cannot be precluded from participating
in capital increases arising from the
capitalisation of retained earnings or
3. Preferred shares cannot be created
or have their existing rights altered in
detriment to the rights of convertible
debenture holders without the prior
consent of the debenture holders.
4. Preferred shares with restricted or no
voting rights cannot exceed half of the
total outstanding stock.
5. Preferred dividends are not cumulative,
unless the bylaws specifically provide
otherwise. Shares entitled to fixed
dividends are not entitled to any
further profit shares, unless stipulated
otherwise in the bylaws. Shares entitled
to a minimum dividend are entitled to
the same profit shares as the common
shares after the latter have attributed a
dividend equal to the minimum preferred

Chapter 9 | Business entities


6. Preferred shareholders may be given the right to elect one or more

representatives to each corporations management body (Executive Board
and/or Board of Directors) and to veto amendments to the bylaws.
7. 7. Preferred shares are entitled to a profit share of at least 10% higher than the
amount attributed to the common shares.

Founders shares

Founders shares (partes beneficirias) may only be issued by closely held

corporations, if the bylaws so provide. These securities have no par value and
can be issued in one class only. They entitle the holders thereof to a share of net
income (plus the reserve for their redemption, if applicable) that may not exceed 10
percent of annual net income after offsetting prior-year losses.
A closely held corporation may sell founders shares or issue them for free to its
founders, shareholders or third parties as remuneration for services rendered.
When given free of charge, these securities are valid for only ten years. Those
that are sold may be issued for a specific period, which must be established in the
If the bylaws provide that founders shares can be redeemed, the corporation
should make a special reserve for this purpose. The bylaws may also establish
that founders shares may be converted into capital stock by capitalizing a specific
reserve for this purpose.


Corporations may issue debentures that afford credit rights to their holders in
accordance with the terms of the debenture deed and debenture certificate.
The law regulating debentures issuance and the rights of debenture holders is
extensive and may be summarised as follows.
1. Debentures issuances and the details thereof must be authorised by the
shareholders at a general meeting.
2. A formal debenture deed must be drawn up and a trustee nominated (in the
event of a public issuance).
3. With certain exceptions:
a. Unless the debentures have no priority in claiming the corporations
assets, the total outstanding debentures may not exceed the corporate
b. When there is a specific claim, outstanding debentures may not exceed
80 percent of the value of assets pledged
c. When there is a floating charge, outstanding debentures may not exceed
70 percent of the book value of assets less secured liabilities.



Doing business

4. Debentures must be issued in local

currency except when they are issued
overseas with Central Bank of Brazil
5. Interest may be fixed or variable, and
holders may be entitled to profit shares.
6. Redemption may occur on a stipulated
date or be conditional on the occurrence
of specific events. Provisions may be
made for prepayments.
7. Convertible debentures may be issued,
but debenture holders must vote on any
resolutions that would affect conversion
8. The trustee must report annually to
the debenture holders and is liable to
them for any losses that may result
from negligence or failure to carry out
duties, which cannot be restricted by the
debenture deed.
9. Debenture holders may meet at any time
to consider matters of interest.

Capital increases

The bylaws may authorise the board of

directors to increase capital within specified
limits without the need to call a shareholders
meeting. In this event, the corporation is
required by law to elect a board of directors
and the bylaws should specify the following:
1. The authorised capital, i.e. the amount
of capital and the series and classes of
shares that may be issued.
2. The body authorised to approve the
3. Conditions to which the issuances are
4. Circumstances in which the
shareholders would have pre-emptive
subscription rights.

Capital increases not authorised in the

bylaws require the approval of shareholders
in a general meeting. These increases
generally result from one or more of the
1. Conversions of debentures or founders
shares into common or preferred shares.
2. Conversion of debt into equity.
3. Exercising of rights acquired to
subscribe shares.
4. Exercising of an option to purchase
5. Capitalisation of profits and/or reserves.
Capital increases from public or private
share subscriptions may occur only after 75
percent of the total capital has been paid in.
Capital increases from the capitalisation of
profits and/or reserves must be made so that
shareholders proportional interests remain
Shareholders have a proportional preemptive right to subscribe additional shares
in the event of a capital increase. The
period for exercising this right cannot be
inferior to 30 days and is established by the
shareholders at the general meeting if it is
not established in the bylaws.
Unless the bylaws state otherwise, there are
no limits to the amount of financing that can
be used to strengthen a corporations capital

Chapter 9 | Business entities


Capital reduction

Capital may be reduced for the following

1. If the capital is considered by the
shareholders to be excessive
2. If the shares issued are not fully
3. To offset accumulated losses
4. To redeem shares
5. To reimburse shares to dissenting
Upon redemption, shares are either
withdrawn from circulation with a
corresponding capital reduction or are offset
against reserves and retained earnings, in
which case the par value of the remaining
shares is adjusted accordingly. Shares
reimbursed to shareholders may be held as
treasury stock, provided the reimbursement
is made from reserves (except legal
reserves) or retained earnings.
In the event of a reduction of capital deemed
to be excessive or redemption of shares,
the reduction only becomes effective 60
days after the publication of the minutes of
the meeting at which the decision to reduce
the capital was made. During this period,
secondary creditors for securities issued
prior to the date the minutes are published
may oppose the capital reduction. The law
further provides that if debentures issued by
the corporation are in circulation, the capital
reduction may only be made with the prior
approval of the majority of debenture holders
at an extraordinary general meeting.



Amounts subscribed in excess of the par

value of shares issued must be classified
as capital reserves, which can be used only
for specific purposes (see Provisions and
reserves in Chapter 12). When the shares
do not have par value, part of the shares
issuance price can be assigned as capital
payment and part as capital reserve.
Shares are generally freely transferable
by the shareholders, but caution must
be exercised in regard to any liens and
encumbrances attached to the shares,
as well as when there are nationality
requirements, e.g., in the banking sector.
The shareholders liability is limited to their
investment in the corporation (amount

Relationship of shareholders, directors

and officers

Executive board, board of directors and

audit committee

With regard to the responsibilities of officers

and directors and those of other oversight
bodies, a corporations bylaws should
establish who is responsible for managing
it. This management may be carried out
either by the executive board (officers) and a
board of directors or by the executive board
only. The board of directors is a mandatory
requirement in the case of publicly held and
closely held corporations with authorised


Doing business

The board of directors is responsible for

defining corporate policy and appointing
officers and independent auditors. The
board does not play an executive role, and
the representation of the corporation is the
sole competence of the executive officers.
The board must have a minimum of three
members, who must be individuals and
shareholders. The members of the board
of directors need not be resident in Brazil,
although in this case an attorney-in-fact
must be appointed for a term equal to the
members term of office, plus three years.
This attorney-in-fact must have specific
powers that allow full representation of the
board member.
The board of directors elects a chairman
from one of its members; the quorum for
passing resolutions is generally equal to the
majority of the directors in office.
The executive board is composed of two
or more individuals, all of whom must be
resident in Brazil, regardless of whether they
are shareholders. The executive officers are
elected by the board of directors or by the
shareholders, as the case may be. Up to
one-third of the executive officers may also
serve on the board of directors. There is no
requirement for employees to be represented
on the board of directors or in management.
The most important duties of the executive
board are to represent the corporation before
third parties and public agencies, undertaking
obligations and exercising rights on its
interest and behalf.

Corporations may have a permanent audit

committee (conselho fiscal), responsible
for overseeing the board of directors
and the executive board, with sweeping
powers and authority. The bylaws should
determine whether the audit committee
will have permanent status or whether it
will operate only when convened by the
shareholders. Generally, this committee
has a non-permanent status. The audit
committee must have a minimum of three
members and a maximum of five, with equal
numbers of substitutes, all residents in Brazil,
shareholders or not, and elected at the
shareholders meeting.
The remuneration of the executive officers,
the board of directors members and the
audit committee must be established by the
shareholders. The remuneration may be
established as an overall amount or amount
per individual.
Executive officers are not personally liable for
the obligations they undertake in the name
of the corporation and in the normal course
of business. However, they are liable for
losses and damages caused by negligent or
fraudulent conduct or by violating the law or
the corporations bylaws.
Executive officers are appointed by the board
of directors (or the shareholders meeting,
as the case may be) and serve the specified
term (no longer than 3 years). They derive
their authority from the corporations bylaws
or from the board of directors resolutions.

Chapter 9 | Business entities


Call notices

As a general rule, it is incumbent upon the board of directors to call the

shareholders meetings. However, the executive officers, audit committee,
shareholders and debenture holders may call shareholders meetings, provided the
following rules are observed:

In corporations that do not have a board of directors, it is incumbent upon the

executive officers to call the meetings.

The audit committee may call a meeting if there is any matter requiring urgent
resolution or if the board of directors or the executive officers delay the calling
of the annual shareholders meeting by more than one month.

Any shareholder may call the meeting if the board of directors or the executive
officers delay the calling thereof for more than 60 days

Shareholders representing at least 5 percent of the capital may call a

shareholders meeting when such a request has not been performed by the
board of directors or the executive officers after eight days.

Shareholders representing at least 5 percent of the voting capital or 5 percent

of the non-voting capital may also call the meeting to convene the audit
committee, when management has failed to do so within eight days of being

Meetings must normally be called by publishing an appropriate announcement

at least three times in the Official Gazette (Dirio Oficial) and in a newspaper of
large circulation in the place where the corporations registered office is located.
Shareholders must be informed in advance of any change, in the newspaper in
which the call notice has been published. If all shareholders are in attendance at
a meeting of a closely held corporation, the notice and publication requirements
may be waived. Closely held corporations with less than 20 shareholders may call
a meeting by personally delivered announcement, with acknowledgment of receipt,
provided the net worth of the corporation is less than R$ 1 million.
Resolutions of shareholders meetings must be recorded in the minutes, which may
be published in summarised form. Subsequently, the minutes must be transcribed
in the appropriate register and filed at the Board of Trade.



Doing business

Types of meeting

Shareholders meetings called and held in

accordance with the law and the bylaws
should decide all matters related to corporate
business and take whatever resolutions are
considered necessary for the corporations
protection and development. There are three
types of corporate meetings:
1. Inaugural meetings:

Management must advise shareholders

at least one month before the date of the
annual meeting as to the availability of:
a. Managements report on the
corporations business activities and
principal administrative events of the
past year
b. The annual financial statements

Must be held within four months of the end of

the corporate financial year to:

c. The opinion of the independent auditors,

which is only mandatory for publicly held
corporations (or large companies
sociedades de grande porte), banking
and financial institutions, insurance
companies and certain companies that
have been given tax incentives.

a. Approve the annual financial statements

and the management report

A representative of the independent auditors

must attend the meeting to answer questions.

b. Approve the proposed distribution of net

income for the year

Unrestricted approval of the report

and financial statements submitted to
shareholders frees the executive officers,
directors and audit committee members from
responsibility, except in the case of error,
bad faith or fraud, for which they remain
responsible for two years from the date of the
meeting that approved the documents.

See Organisation and incorporation

procedures above.
2. Annual shareholders meetings:


Elect the executive officers or the

board of directors members, in addition
to the audit committee members, if
applicable, and approve the authorised
capital, minimum or fixed dividends
and premiums on reimbursements, if

Any other matters requiring the shareholders

approval must be submitted to an
extraordinary shareholders meeting (see

If the financial statements are modified by the

shareholders meeting or the shareholders
modify the corporations net income for the
year or its liabilities, management must
republish the amended financial statements
within 30 days. If the proposed distribution
of net income is not approved by the
shareholders, the modifications they approve
must be included in the minutes of the
meeting, but republication is not required.

Chapter 9 | Business entities


3. Extraordinary shareholders meetings:

The various matters that can only be dealt
with at an extraordinary meeting include the
a. Amendments to the bylaws
b. Authorisation to issue debentures and
founders shares
c. Approval of corporate conversion,
amalgamation, mergers, or spin-off
transactions, dissolution or liquidation,
and election of liquidators and approval
of their accounts
d. Authorisation for the executive
officers to declare bankruptcy or to
request an arrangement with creditors
(recuperao judicial).
Annual and extraordinary meetings may
be called and held at the same place,
date and time and be documented in the
same minutes. In practice, annual and
extraordinary meetings are normally held
immediately after each other, and the order
of such meetings is determined by the
matters to be discussed.

Voting procedures and quorums

Except for meetings called to amend a

corporations bylaws, which require at the
first call the attendance of shareholders
representing at least two-thirds of the
voting capital, other general meetings can
proceed at the first call with the attendance
of shareholders representing one-quarter
of the voting capital. At a second calling,
meetings may be held with any number of
shareholders in attendance.
Shareholders may be represented at
meetings by proxy holders, who must be
shareholders, executive officers or directors
of the corporation or lawyers. In the case
of publicly held corporations, financial
institutions may hold proxies.


In general, the resolutions at general

meetings are passed by an absolute majority
of the shareholders in attendance, unless
the law or the corporations bylaws provide
otherwise. If an absolute majority is not
obtained or if the vote is tied, final resolution
by arbitration is permitted if specified in the
bylaws. If not, a new meeting must be called
to reconsider the matter. In the extreme case
where a decision has not yet been taken
even after a second meeting, the matter
must be referred to the courts.
Approval by shareholders representing at
least half the voting capital is necessary for
certain matters unless the bylaws, in the
case of a closely held corporation, require
a higher quorum. These matters relate
mainly to amendments in capital structure,
profit distributions and reorganisations.
When a certain majority is required, a tied
vote is deemed to be non-approval of the
matter under consideration, and resorting to
arbitration would not be allowed to change
this result.
Each common share is entitled to one vote,
except for electing the members of the
board of directors, when multiple voting may
be used. For this purpose, shareholders
representing a minimum of 10 percent of
the voting capital may use multiple voting,
regardless of whether this is authorised by
the bylaws, by attributing to each share a
number of votes equal to the number of
board members to be elected. These votes
may be used to support a single candidate or
be divided between various candidates.
Any resolution voted on by a shareholder
whose interests conflict with the corporations
may be annulled. Furthermore, such
shareholder is responsible for damages
caused and must transfer any advantages
obtained to the corporation.


Doing business

Preferred shareholders may have restricted voting rights or none at all. Preferred
shareholders may acquire voting rights in a corporation that fails to pay fixed or
minimum preferred dividends for three consecutive years. These voting rights
continue until all dividends in arrears have been paid.
Unless the bylaws provide to the contrary, pledging a share does not affect its
voting rights. Creditors guaranteed by pledge or share deposit cannot exercise
voting rights. Debtors may exercise voting rights if provided for in the pledge
Minority shareholders have the following rights.

If they represent 5 percent of the capital, they may call a general meeting if
the officers or directors fail to do so within eight days of a properly formulated

If they represent 10 percent of the voting capital, they may elect a member of
the audit committee and may use multiple votes to elect members of the board
of directors.

If they represent 10 percent of the common shares or 5 percent of the

preferred shares without voting rights, they may require the appointment of
the audit committee.

If they represent 5 percent of total capital, they may request to view the
corporations books through a court petition.

Bylaws may establish whether conflicts between controlling shareholders and

minority shareholders may be settled through arbitration.

The approval and dismissal of independent auditors shall be subject to the

veto of the directors appointed by minority shareholders.

Shareholders agreements are binding on third parties for specific performance

when filed at the corporations registered office. They may regulate the following:

Purchase and sale of shares

Pre-emptive rights under a share acquisition

Exercising of voting rights or control power.

In the annual management report a publicly held corporation must inform the
shareholders of the provisions of all shareholders agreements regulating the
distribution of dividends and reinvestment of earnings.

Chapter 9 | Business entities



Shareholders dissenting from decisions

on fundamental issues have the right to
withdraw from the corporation and have
the value of their shares reimbursed by the
corporation at a price that cannot be less
than the net worth of the shares as based
on the latest balance sheet approved by the
shareholders at an annual general meeting,
unless the bylaws state that the price shall be
calculated based on the corporations market
value to be assessed by appraisal. Should
the latest balance sheet have been prepared
over 60 days ago, the dissenting shareholder
may require a special balance sheet. These
fundamental issues include the following.
1. Creation of preferred shares or increase
in any class of existing shares out of
proportion to the others, unless already
provided for in the bylaws.
2. Changes to the terms attached to
preferred shares or the creation of a
more favoured class.
3. Alteration of the corporations core
4. Decrease in the mandatory dividend.
5. Merger of the corporation or
amalgamation into another.
6. Acquisition by a publicly held corporation
of control of another entity for an amount
greater than that established by the law.
7. Transformation of a corporation into
a private limited-liability company
8. Transfer of control of the corporation
to a mixed-capital company through


The law allows a corporation to reconsider

or rectify resolutions that provoke dissension
of shareholders whenever the related share
reimbursement payments could jeopardise its
financial stability.
To exercise the right of withdrawal a
dissenting shareholder must claim
reimbursement of shares within 30 days
of the publication of the minutes of the
shareholders meeting during which the
offending resolution was approved.

Dividend payments

Dividends may be paid out of the net income

for the current year or prior years and from
profit reserves. In any event, they can only
be paid out of a surplus. Preferred dividends
may be paid out of certain capital reserves,
subject to authorisation in the bylaws.
Shareholders have the right to receive the
mandatory dividend established in the bylaws
or, if the bylaws are silent, half of annual net
income. The mandatory dividend may not
be less than 25 percent of net income for
the year unless stipulated otherwise in the
bylaws. The mandatory dividend may not be
paid by a closely held corporation when there
is unanimous agreement of the shareholders
in this regard, and may not be paid when
payment would be incompatible with the
financial situation, regardless of whether the
corporation is publicly or closely held. Net
income retained for the latter reason must
be transferred to a special reserve and, if not
absorbed by subsequent losses, be paid out
as dividends as soon as the corporations
financial situation permits. Capitalisation of
this special reserve is prohibited.


Doing business

A corporation may be converted into a
limitada or vice-versa (or into any other
corporate form). If conversion is not provided
for in the bylaws, unanimous approval
must be obtained from the shareholders.
Thus, dissenting shareholders are entitled
to exercise their right to withdraw from the
corporation (see above). Creditors are not
jeopardised by transformations, as their
rights remain unchanged.

Liquidation and Creditors agreement

A corporation retains its corporate personality
throughout the liquidation process
until its legal existence is terminated.
Normal liquidation occurs in the following
1. By termination of the corporations
existence in the circumstances provided
for in the bylaws.
2. By shareholder resolution.
3. By cancellation of the authorisation to
4. In the event the corporation is left with
a single shareholder, if the minimum of
two shareholders is not restored by the
following years shareholders meeting
and the corporation is not declared a
sole-shareholder subsidiary (subsidiria

Judicial dissolution may occur in the following

1. When the incorporation of the
corporation is annulled by an action
brought by any shareholder.
2. When an action brought by shareholders
representing 5 percent or more of the
corporate capital confirms that the
corporation cannot achieve its business
3. As a result of bankruptcy in a judicial
A temporary voluntary creditors agreement,
called recuperao extrajudicial is available
when a corporation is in financial strife
and negotiates better terms with a pool of
creditors to liquidate its debts, in such a
way that it does not stop producing, does
not lay off employees and maintains its core
Liquidation may also occur in special cases
by decision of the administrative authorities,
pursuant to the appropriate applicable
Shareholders resolutions for corporations
undergoing liquidation require the approval
of holders of at least 50 percent of all
outstanding shares, regardless of voting
The liquidator has the same responsibilities
as an executive officer or a director of the
corporation. The duties of the executive
officers, directors, audit committee members
and shareholders remain in force until the
corporation has been dissolved.

Chapter 9 | Business entities


After all creditors have been paid, the

shareholders may, to the extent that the
assets have been realised, approve a
distribution to themselves before completion
of the liquidation. Specific assets may be
distributed to shareholders if this is not
harmful to the creditors or the minority
shareholders rights. When all liabilities
have been settled and the remaining
assets distributed, the liquidator must call a
shareholders meeting for a final rendering of
accounts. Upon approval of these accounts,
the liquidation is considered to be completed
and the corporation is automatically
Corporations also become dissolved upon
transformation, merger, amalgamation or
spin-off, with all equity assigned to other

Books and records

The books and records that must be kept are
informed in Chapter 11.
All books may be required to be disclosed by
court order when requested by shareholders
representing at least 5 percent of the
capital, when there has been a violation of
law or the bylaws or if there is suspicion of
serious irregularities on the part of any of the
corporations management bodies.

Statutory audit
Except for publicly held corporations,
large companies (sociedades de grande
porte), banks, insurance companies and
other financial institutions, corporations
are not required to be audited by chartered
independent public accountants (see
Chapter 11).


Limited-liability companies and

Incorporation procedures
A private limited-liability company (commonly
known as a limitada) and all the types of
partnerships described at the beginning of
this chapter are formed by signing a public
or private deed (articles of association contrato social) which defines the basic
governing provisions and the relationship
between the quotaholders/partners. The
deed (articles of association) is equivalent
to a corporations bylaws and should
contain clear provisions on voting rights,
management powers and transfer of capital
quotas. In the case of a private limited-liability
company, its name must be followed by the
word limitada or its abbreviation Ltda.
In the case of partnerships, the name must
generally include the names of the managing
partners (with unlimited liability).
If the articles of association are silent,
the civil code applies to limitadas and
partnerships. Corporation law also applied if
provided for in the deed.
The articles of association and any
subsequent amendments to the provisions
governing the entity, including transfers of
capital quotas, must be filed at the Board of
Trade, whereupon they become a matter of
public record. There are no further disclosure
A limitada and any type of partnership can
generally be formed in about 30 days.


Doing business

Capital structure
There is no minimum capital requirement for
a limitada or a partnership and no deposit
is necessary for their incorporation, with a
few exceptions, such as having a foreign
officer, among others. There is no ceiling on
the number of quotaholders or partners each
entity may have, although there must be at
least two quotaholders or partners. There are
no statutory provisions regarding time limits
for the paying in of capital, but the articles of
association must stipulate the term.
Capital is divided into quotas of equal or
unequal value, as specified in the articles
of association (contrato social). The
capital is usually divided into quotas of
equal par value. The number of quotas and
corresponding amount held by each of the
quotaholders thereof must be clearly stated.
Quotas are not issued and therefore bearer
quotas are also not permitted.
Increases and decreases in capital are
made through amendments to the articles of
Provided the articles of association permit,
quotas may be transferred between
quotaholders or to third parties by means of
amendments to the articles of association.
The liability of quotaholders of a limitada is
limited to the value of their quotas, when fully
paid in and secondarily to the total capital
when not paid in. Partners in general have
unlimited-liability for the partnerships debts.

Relationship of quotaholders, partners

and managers
The management of a limitada may be
entrusted to one or more quotaholders or
non-quotaholders (individuals), resident in
Brazil, and the articles of association (or a
specific agreement) must state their names
and the extent/limits of their powers. The
management of partnerships generally
follows similar rules.
The responsibilities and duties of an
executive officer of a limitada are similar to
those of a corporation. Thus, in general they
are only personally liable for deceit, unlawful
acts or when exceeding their powers (as per
the articles of association).
Within the four months subsequent to the
end of the financial year, the quotaholders
of a limitada must hold a general meeting
(if there are more than 10 quotaholders),
or pass a written resolution, to approve
the management accounts and financial
statements, to decide on the allocation
of profits and to elect new managers, if
Limitadas must also maintain corporate
books, similar to those of a corporation
(except for the Nominative Shares
Registration Corporate Book).
Limitadas and partnerships are not required
to publish financial statements.
There are no specific legal provisions on
profit distribution, although dividends may
only be paid out of the profits (surplus)
legally available for distribution. A limitadas
quotas can have unequal profit distribution
As noted earlier, a limitada may be
transformed into a corporation or vice-versa
(or into any other corporate form).

Chapter 9 | Business entities


Liquidation and creditors agreement

Limitadas and partnerships may go into liquidation as a result of provisions in the
articles of association, or agreement between the quotaholders/partners, due to
only having a single quotaholder/partner, end of term, expiry of operating license
or by court order. Bankruptcy declared in a judicial liquidation is also a reason
for liquidation. The conditions for withdrawal, as well as the basis and timing for
repaying quotas/partners, must be clearly established in the articles of association.
A creditors agreement (recuperao extrajudicial) is also applicable to limitadas
and commercial partnerships.

Books and records

See Chapter 11 for requirements about books and records.

Statutory audit
There are no statutory audit requirements, except in the case of large companies
(sociedades de grande porte).

Joint venture
A joint venture may be implemented by a capital association through the
incorporation of any chosen corporate form (legal entity), usually a corporation or a
limitada. The formalities for entering into a joint venture agreement and disclosure
requirements depend on the corporate form chosen. Foreign companies and
individuals may form a joint venture with or without local participation.
A joint venture may also be implemented through a special partnership (sociedade
em conta de participao - see above) or through the formation of a consortium,
which is neither a legal entity nor a form of capital association. A consortium is
used mainly with major contracts for the rendering of services or for the supply
of equipment. It is actually a contract, the essential feature of which is the
association of two or more enterprises for the joint accomplishment of one specific
undertaking. Each associate maintains its respective structure and there is no
capital association.
There are no special statutory audit requirements for joint ventures. However, the
aforesaid rules applicable to corporations and limited-liability companies large
companies are to be obeyed.



Doing business

Branches of foreign companies

In order to operate a branch, a foreign
company must apply for permission from
the federal government. Approval must also
be obtained for any change in the branchs
organisation as a result of an amendment to
the bylaws of the head office or for any other
reason. The competence for authorising the
setting up of branches is currently held by
the Ministry of Development, Industry and
Foreign Trade, by delegation.
The branch must operate under the name
its head office uses in the country of origin
and may add the words do Brasil (of Brazil)
or para o Brasil (for Brazil ). Subsequent
nationalisation of branches, i.e. conversion
into a Brazilian legal entity, is provided for in
the law, subject to the federal governments
authorisation (see above).
The authorisation decree and other official
notices are published in the Official Gazette.
These should be filed at the Board of Trade
of the state where the branch will be located.
An amount of capital must be assigned and
paid in, in advance. However, the liability for
debts and claims on the branch is not limited
to that amount but rather the head offices
capital. No minimum has been established
for branch capital.

A branch is considered an extension - the

Brazilian operations - of the head office.
Furthermore, the head office is liable for the
branchs operations. Sweeping powers of
administration and representation must be
given to the permanent legal representative,
who must be permanently resident in Brazil.
No annual meeting is required.
A branch is normally closed by the decision
of the head office.
The books and records are kept in the same
manner as for corporations (see above and
Chapter 11). The foreign company must
publish its financial reports in the Official
Gazette as in its country of origin, as well as
the branchs financial reports, under pain of
forfeiting its authorisation.
For the tax implications to a foreign investor
see Chapter 16.
There are no statutory audit requirements.

Chapter 9 | Business entities


Mixed-capital companies
The Brazilian government has a controlling interest in this type of company, which
takes the form of a corporation, and the other stockholders are private investors.
These companies are subject to corporate law and also specific federal laws. They
are restricted to the activities specified in the law authorising their formation.

An entrepreneur is an individual who is professionally engaged in an organised
economic activity involving the production of goods or the rendering of services.
The entrepreneur must have civil qualifications and be registered at the
Public Register before beginning activities. By operating in this form, all of the
entrepreneurs assets, personal or business, are liable for the debts incurred by the
business activity.
There are no statutory audit requirements. However, the Tax authorities require
that adequate books and records be maintained, which is also mandatory by law,
in order to reflect the taxable income and transactions clearly. The owner of a sole
proprietorship is taxed as an individual.



Doing business

Chapter 10

Labor relations
and social

Chapter 10 | Labor relations and social security


Investor considerations

The labour markets are regulated in Brazil.

An adequate and growing work force is available but is mainly semiskilled and

Labour disputes are mainly resolved through collective bargaining but

government influence is significant.

Labour legislation is notoriously favourable to employees.

Trade unions are quite active.

All employees must be paid an additional months salary each year as a

compulsory bonus.

Employers must contribute to various federal social security and welfare


The social security system covers main employee risks but employers may
need to increase certain benefits for middle and senior management.

Discrimination at work is prohibited.

Applications to bring in foreign personnel are scrutinised by the federal


Employee dismissal is regulated by the federal government.

Industrial relations
Availability of labour
The labour force stands at approximately 106.5 million, or 58 percent of the total
population, with about 19 percent employed in agriculture, 20 percent in industry,
17 percent in commerce and 45 percent in services. Women comprised about 42
percent of this workforce in 2002. A significant part of the work force is not formally
In general, adequate labour is available. Semiskilled and unskilled labour is
fairly abundant, recognised as hard-working and willing to learn, and is relatively
mobile. Skilled labour tends to be in short supply. Personnel with proven technical,
professional or management skills are growing as company in-house training and
other courses take effect, and are highly sought after.



Doing business

Employer/employee relations
Extensive social security laws and labour
regulations govern employer/employee
relations. However, foreign investors have
not experienced much difficulty in the way
of labour problems, principally because they
follow local standards and practices.
Employer/employee relations are dealt with
principally in the consolidation of labour
laws (CLT) enacted in 1943 and subsequent
legislation. The labour laws are applicable
to all employees in regular registered
jobs, except for public employees and civil
servants, who have separate regulations.
The labour laws make no distinction between
skilled and unskilled workers or between
blue-collar and white-collar workers.
Therefore, all types of workers are generally
referred to as employees. A change in the
legal structure or ownership of an employer
does not affect the rights acquired by
employees under the labour laws.
All registered employees, including
foreigners, are required to hold a work card
(carteira de trabalho) which must state their
terms of employment. Employers must keep
official registers or cards containing detailed
information about each employee, and every
year they must submit returns to the local
office of the Ministry of Labour listing all
employees, and also reporting the number of
foreigners and minors on their books.
In general, terms of employment may not be
altered except by mutual consent, but there
are exceptions, including the following:

An employee may be withdrawn from

a position of trust and responsibility
without compensation, provided the
status previously held is restored.

Employees may not normally be

transferred from one place of work to
another if this involves a change of
residence, unless the employee holds a
position of trust and responsibility or the
transfer results from the closing down of
an establishment.

Notwithstanding the above, an employee

who is not in a position of trust and
responsibility may be transferred if this
is justified by the requirements of the
employer. A 25 percent pay rise must
be given upon transfer and all expenses
incidental to the transfer must be paid by
the employer.

Lockouts are mentioned in the labour laws

as acts subject to penalties if undertaken
without prior legal authorisation or if they
are ruled to be abusive by the judicial labour
Employees who take leave to fulfil military
or civic duty must be permitted to return
to their former position with the benefits
corresponding to the position that would
otherwise have been attained. Employees
must notify their employer of their intent
to return within 30 days following the
termination of the outside activity.
Employees whose terms of service are
interrupted by illness are entitled to social
security allowances and upon recovery may
return to their former position and obtain all
accrued benefits.

Chapter 10 | Labor relations and social security


Special regulations exist for the protection of minors aged 14 to 18. Apprentices
must be between 14 and 18 years of age and must be undergoing occupational
training. All minors must be given enough time to attend educational classes.
All industrial enterprises are required to employ apprentices and register them
in National Apprentice Services. Their number may not be less than 5 percent or
more than 15 percent of the total skilled workers.

Trade unions are active and are a force to be reckoned with in the metallurgy,
automobile, banking and transport sectors.
The right to strike is recognised and regulated in law. The labour laws legislate
for the formation of trade unions on the basis of a similarity of business interests
or occupations. They may be organised on a citywide or merely a district basis.
They may also be combined so as to form state-wide federations or nationwide
confederations. As a rule, their membership must represent at least one-third of all
persons engaged in the activity or occupation concerned. Membership in a trade
union is not obligatory.
Amongst the prerogatives of trade unions are the rights to:

Engage in collective bargaining, whereby they may sign contracts on behalf

of all employees occupied in the activities they represent, whether union
members or not.

Receive contributions from all employed in the occupation they represent,

whether union members or not.

Receive monthly dues from union members.

Operate employment agencies.

Cooperate with the government in studies and research involving the activities
they represent.

Unions are regulated by the Ministry of Labour. The results of collective bargaining
are subject to the decision or approval of the labour courts.
Union representation at places of work with more than 200 employees is required
by the Constitution.



Doing business

Employee training programmes

Working conditions

Government-sponsored training to improve

labour standards includes the following.

Wages and salaries

Servio Nacional de Aprendizagem

Industrial (SENAI): SENAI is concerned
with all aspects of industrial training
under the supervision of the National
Confederation of Industry.

Servio Nacional de Aprendizagem

Comercial (SENAC): SENAC organises
and administers commercial training
under the supervision of the National
Confederation of Commerce.

SENAI and SENAC are funded by a payroll

levy of 1 percent of gross payroll. Companies
that have more than 500 employees are
liable to an additional contribution to SENAI
of 0.2% of the gross payroll.
Employers in many sectors provide specific
training schemes for their employees,
mostly in-house, but are also using
outside consultants and/or vocational and
educational programmes offered by various

All work of equal value must be remunerated

at the same rate, irrespective of the
employees nationality, age, sex or marital
status, although differences are allowed for
employees working in the same position
for two consecutive years more than their
A minimum wage is established by law and
adjusted annually, which currently stands at
approximately USD 293 per month. It should
be noted that the minimum wage serves
mainly as a base index for adjusting wages
and certain prices. In practice, it is paid
only to certain rural, unskilled and migrant
The main labour law provisions concerning
wages and salaries are as follows.

National Salary Policy

The National Salary Policy used to change

periodically. Currently it is based on free
collective negotiations.

Workers councils

For employers with more than 200

employees, an employee representative
must be elected for the exclusive purpose
of ensuring direct employer/employee

Employers are not permitted to make any

deductions from employees remuneration
other than those resulting from advances,
legal and collective bargaining agreements,
and withholding income tax and social
security contributions on payroll.

Profit sharing

Remuneration may only be reduced in the

extraordinary circumstances established by

Law 10101/00 allows companies to distribute

part of their annual net income to employees.
Profit sharing must be negotiated on a
company-by-company basis and disputes
settled by arbitration. Amounts distributed are
deductible for corporate income tax purposes
and not subject to labour and social security
contributions, but the beneficiaries are taxed.

Deductions and reductions

Chapter 10 | Labor relations and social security



When paid under a collective bargaining or

private agreement, the overtime rate must
be stipulated. The additional pay for overtime
work cannot be less than 50 percent of
the regular wage rate. There are limits on
the number of overtime hours that can be
worked each day. If overtime is incurred as
an emergency measure, payment may not
be less than the regular wage, provided this
emergency was a contingency beyond the
employers control. Managers are not entitled
to overtime pay.

Night work

For work between 10:00 p.m. and 5:00 a.m.,

remuneration must be at least 20 percent
higher than similar daytime work. Each hour
of night work is deemed to last 52.5 minutes.


Payment must be made in local currency

within the first five working days of the
month. Gaps exceeding one month
between successive payment dates are not
permissible. The remuneration of foreign
technicians hired directly overseas (not
through a technical service agreement
between a national and a foreign company)
on a temporary basis to render specialised
services may be stipulated in foreign
currency, but payment must be made in local


Obligatory annual bonus

Employers must pay an annual bonus,

known as the 13th month salary. This bonus
is equal to the normal remuneration for
December and is paid in two parts: part one
when the employee takes their holidays or
before November 30 and part two in early
December. Employers contributions to the
Employee Severance Indemnity Fund (see
Termination of employment below) and to
social security funds are also payable on this

Family allowance

The INSS (National Institute of Social

Security) pays a small supplementary
monthly allowance for all offspring under 14
years of age, for employees on a wage of
less than USD 459 per month.

Fringe benefits
Voluntary fringe benefits normally constitute
a significant additional employment cost.
Some employers provide medical care,
meals and transport. Other fringe benefits are
also given, depending on the nature of the
enterprise and the category of the employee.
Income tax incentives exist for meals
provided under approved schemes. Many
companies have private pension schemes for
which there is special legislation. Group life
insurance schemes may also be available.
All employers are obliged to make
reasonable provisions for the comfort and
convenience of their employees. Appropriate
canteen facilities must be provided on the
premises if the headcount exceeds 300.
The authorities may require that other
special facilities be made available where
unusual conditions exist. No industrial
enterprise may commence operations until
working conditions have been inspected and
approved by the authorities.


Doing business

Employers must also supply transport

vouchers to employees, which entitle them to
free transport to and from work. Employees
contribute to the cost at up to 6 percent of
their monthly pay.
Some companies also provide meal vouchers
which employees may use in certain
restaurants and other eating establishments.
If the above benefits are not stipulated by
labour law, the respective amounts are
considered as earnings and subject to payroll
The social security benefits are discussed

Hours worked
The statutory working week may not exceed
8 hours daily or 44 hours weekly. In the
case of employers with continuous working
shifts, the working day may not exceed 6
hours. In both cases, this requirement can be
resolved by means of a collective bargaining
agreement. Unions are attempting to cut
the working week to 40 hours, with some
success, and many companies are now
working a five-day week of eight hours a day.
Work periods in excess of 6 hours must be
interrupted by a break/lunch period of one
to two hours, but this break may be reduced
to less than one hour for enterprises that
provide adequate canteen facilities. If the
work period is six hours or less, a 15-minute
break must be given after the first four hours.
Office employees on continuous work, such
as typing, calculating and bookkeeping, must
be permitted a 10-minute break after every
90 minutes of work. Other rest periods have
to be given for special kinds of work.
The above provisions do not apply to
managers and other employees in positions
of trust and responsibility.

Paid holidays
Paid bank holidays are listed in Tips for
business visitors at the end of Chapter 1.
Upon completion of every 12 months of
service, employees are entitled to paid
holidays of 30 consecutive days to be taken
during the next 12-month period. Employees
are entitled to an additional one-third of their
monthly pay when taking annual holidays.
If holidays are not granted in this period,
employees must receive double their
remuneration. Up to one-third of the holiday
entitlement may be paid in cash instead,
if the employee so desires. In addition,
employees are entitled to receive 50 percent
of their 13th month salary (see Obligatory
annual bonus above) at the beginning of
their holidays.

Equal opportunities
This is not an important factor in industrial
relations yet.

Health and safety

Various regulations cover health and safety
issues in dangerous and unhealthy activities.
Many companies have a training and
education system designed to reduce the
number of health and safety hazards in the
work place.
It should also be noted that the activities
listed as dangerous or unhealthy to
employees have special provisions in terms
of salaries, breaks and other matters.

Chapter 10 | Labor relations and social security


Termination of employment
All employers must contribute to the Employee Severance Indemnity Fund (FGTS)
an amount equivalent to 8 percent of the gross monthly remuneration of each
Contributions are credited to bank accounts in the name of each employee and
accrue interest at the Reference Rate (Taxa Referencial TR), plus 3 percent
per year. These contributions are deductible expenses for corporate income tax
purposes. The balances in these bank accounts may be withdrawn by employees
upon termination of employment under the following circumstances:

Dismissal without cause, or where the employer and employee are considered
to be mutually at fault. In the case of dismissal without fair cause, the
employer is obliged to pay the employee an additional penalty equal to 40
percent of the accumulated balance in the employees FGTS bank account,
and 10 percent to a government social fund. If employer and employee are
mutually at fault, the additional amount payable is 20 percent of the FGTS

Liquidation of the enterprise or termination of operations resulting in

cancellation of the employment contract.

Retirement in accordance with the social security regulations.

An employer may insist on retirement when an employee reaches 70 years of


Death of the employee, in which case the balance in the FGTS account is
included in the deceaseds estate.

Employees may use their FGTS balance at any time to purchase a personal
residence under a government-approved housing financing scheme.
Normally, both employer and employee are obliged to give 30 days notice of their
intention to terminate employment. If the service is terminated by the employer
without such notice, compensation corresponding to the period of notice must
be paid. For all employees with more than one year of service, the settlement of
an employees termination rights under the labour laws must be signed by the
employee in the presence of a representative of the labour authorities or union.
After notice has been given by the employer, the employee must be granted two
hours leave per day for the purpose of finding another job.
Accrued holiday pay is also due upon termination of employment, even if the
employee has not completed 12 months service.



Doing business

Social security
Social security system


The social security system is regulated by

the Consolidation of Social Security Laws
- CLPS. The system provides benefits like
pensions, sickness and maternity assistance
and accident insurance. In practice, many
employers supplement benefits by making
contributions to private medical, dental and
hospital plans with a view to upgrading the
services provided by the government.

Employees contribute monthly to the social

security system at the rate of 8 to 11 percent
of a progressive-scale base salary with a
maximum monthly contribution of USD216.
These contributions are withheld from
payroll. Employer monthly contributions are
made at 20 percent of the gross payroll.
The contribution of financial institutions and
insurance companies is 2.5% higher. In
addition, employers are required to make
monthly contributions to other funds, which
could currently amount to as much as 8.8%
percent of gross payroll. Such contributions
may be increased or reduced according
to the number of work-related accidents
suffered by the company. Employees and
employers contributions are deductible for
income tax purposes. For further details see
Appendix XII.

There is an official unemployment insurance


All persons in gainful employment and
their dependents are covered by the social
security system, provided contributions
have been paid. Foreign personnel cannot
choose to forgo coverage. Contributions are
forfeited if a foreigner leaves the country
before qualifying for a pension or after twelve
months from the moment contributions are
discontinued, provided that the minimum
period was reached. The self-employed pay
social security taxes for their own future

Certificates showing that employers are upto-date with their contributions are required
before they can engage in certain business
activities, such as public bids, real estate
mortgages or sales, capital reductions,
mergers and spin-offs, amongst others.
The unemployment insurance program
is funded by proceeds from the Social
Integration Program tax (PIS/PASEP).

All social security system benefits are
calculated on the basis of what is known as
the benefit wage (salrio de benefcio). This
is generally computed on the base salary
used for contributions made during various
periods prior to the date of claims, according
to the kind of benefit. For further details see
Appendix XII.

Chapter 10 | Labor relations and social security



The main benefits are as follows:

The period of maternity leave is 120 days at

full pay. Spouses are allowed paternity leave
of 5 days at full pay.

Old-age pensions

Old-age pensions are available from the age

of 65 for men (60 for women) providing at
least 180 monthly contributions have been

Maternity leave

The company may, at its own discretion,

retire employees aged over 70.

Companies that apply for a special

Government Program called Empresa
Cidad may guarantee an additional 60
full pay days and deduct the corresponding
payment for corporate income tax purposes.

Retirement pensions

Retirement pensions are normally available

if an employee has worked for 35 years for
men (30 for women). The qualifying period
of service is shorter for certain types of work,
e.g. dangerous, unhealthy or fatiguing work,
provided contributions have been made for
at least fifteen years. Employees entitled to
receive retirement pensions may continue to
work for the same or a different employer.

Invalid pensions

The invalid pension replaces the sickness

benefit and accident insurance benefit,
subject to formal approval of the government
social security fund.

Sickness benefits

The sickness benefit is payable if the insured

is unable to work for a period of more than
15 days and continues for the duration of
the infirmity. It can be replaced by the invalid

Accident insurance benefits

When incapacitated by an accident,

employees receive full pay for the first 15
days absence and then a certain amount
monthly. If it is determined that the accident
victim has been left permanently incapable
of working, the accident insurance payments
are replaced by the invalid pension.

Other benefits

Other social security benefits include

pensions for the dependents of deceased
beneficiaries, assistance for the dependents
of insured prisoners, birth grants, maternity
assistance, funeral grants, and the family
allowance for offspring under 14 years of
All benefits are adjusted annually on the
basis of official inflation indexes.

Unemployment relief
Unemployment benefit is granted under
certain conditions to employees under
an employment contract and domestic
employees, amongst others. The respective
amount is paid in up to 5 instalments.
Unemployment pay, as a general rule, is
not granted to those dismissed from work
for misconduct, those who stopped working
without reason or those unable or unwilling
to work.

Totalisation agreements
Agreements with other countries regarding
the coordination of social security systems
are listed in Appendix V.


Doing business

Payroll costs
Labour costs (wages, salaries, fringe
benefits, severance payments, payroll taxes,
social security and welfare contributions,
etc.) comprise a significant portion of
overall production costs, as they have risen
considerably as successive governments
have increased contributions and benefits.
As a percentage of overall production costs,
labour costs are generally lower in Brazil
than in North America and most European
countries but are higher than in many Asian

Expatriate personnel in Brazil

Work permits
There are two types of visas that allow
foreigners to work in Brazil:

Temporary visas:

Provided there is an employment contract

with a Brazilian company, the holder is
entitled to work in Brazil for two years,
renewable for as long as the contract
regarding the holders permanence in the
country is valid. Foreigners are deemed
employees of the Brazilian company and are
entitled to all labour rights and are subject to
the Brazilian Social Security System.
Without the contract, the visa is issued
for foreign individuals involved in specific
projects that lead to the effective transfer
of know-how/technology to Brazil and the
remuneration must be paid through foreign
sources. The foreigners are not considered
employees of the Brazilian company and are
not entitled to labour rights and/or subject to
the Brazilian Social Security System.

Permanent visas:

These visas may be granted to those hired

to work in Brazil for an indefinite period and
are generally issued to senior executives
(directors) of foreign companies being
transferred to Brazil and individuals with
specialist skills not readily available in Brazil.
The Brazilian authorities require minimum
foreign investment of USD 200,000 per
expatriate worker, duly registered at the
Central Bank of Brazil. The investment can
be reduced to USD 50,000 if the company
generates at least 10 direct jobs during the
period of two years following the foreigners
appointment in the Bylaws/Articles of
Association of the Brazilian company. In
this case, the individuals are usually not
entitled to labour rights but are subject to the
Brazilian Social Security System.
These visas can also be granted to
individuals marrying Brazilians or who
have Brazilian-born offspring. In other
circumstances it is difficult to obtain a
permanent visa. In this case, the individual is
deemed to be a Brazilian national.
Foreigners not in possession of one of the
above visas may not work in Brazil. It is
advisable to apply for any type of visa well in
advance. Note that holders of business visas
will only be able to enter Brazil to attend
meetings, workshops and visit clients. These
visas are valid for a maximum stay of 90
days and up to 180 days per year. These visa
holders cannot be registered as employees
of a Brazilian entity.
Permanent visas are valid for up to 5 years.

Chapter 10 | Labor relations and social security



Special arrangements or concessions

Living conditions

Social security benefits are the same for all

employees, regardless of their nationality.
Contributions to the social security fund
are not refunded if an employee leaves the
country. Those working under a temporary
residence visa are also entitled to annual
holidays, standard working hours, accident
insurance and social security benefits.

In general, living conditions in the major

urban areas are similar to those in the
United States or Europe, although personal
security is more of an issue. High-standard
accommodation is available, in both houses
and apartment buildings. There is still
considerable reliance on domestic help
although the use of household appliances
is high. There are no restrictions on a
family accompanying foreign personnel into
Brazil, although this is not necessarily so
for domestic servants. Most major urban
areas have adequate education facilities for
the children of foreign personnel through to
comprehensive school level.

Foreigners arriving on permanent visas may

bring otherwise dutiable household goods
without paying duty. Duties may be imposed
if these goods are sold inside Brazil before
certain time limits have expired. The same
applies for holders of temporary residence
visas, except that they are required to
repatriate all otherwise dutiable household
goods when they leave.

Restrictions on employment
All employers, with a few exceptions,
are required to employ Brazilians at the
proportion of at least two-thirds of their
overall staff, both in terms of numbers and
total remuneration. Exceptions may be
made for skilled workers and technicians.
Foreigners resident in Brazil for ten years
or more or those with a Brazilian spouse or
child born in the country qualify as Brazilians
for this purpose. In the event employees
have to be made redundant as a result
of downsizing, Brazilians carrying out the
same duties as foreigners must be given
preference as regards retention.

Domestic help and food are relatively

inexpensive by international standards.
Housing costs vary from city to city but,
depending on the location and quality, may
well be higher than in most developed
In most areas of the country an automobile
is necessary for transport around the
neighbourhood, shopping and going to and
from work. Supermarkets, delicatessens and
drug stores stay open most evenings.


Audit and accounting


Chapter 11

and practices

Chapter 11 | Audit requirements and practices


Investor considerations

S.A. corporations are required to publish their annual financial statements.

The annual financial statements of all listed companies and all large
companies (entities with total assets of over R$ 240 million or annual revenue
over R$ 300 million) must be audited by an independent auditor registered at
the Brazilian Securities Commission (CVM).

Financial institutions and other entities under the jurisdiction of the Central
Bank, as well as insurance companies, are required to publish annual and
semi-annual audited financial statements.

The quarterly financial information of listed corporations and financial

institutions must be filed with the respective regulator (CVM or Central Bank)
and reviewed by an independent auditor.

Statutory requirements
Digital books and records
In January 2007, Federal Decree 6022 instituted the Public Digital Bookkeeping
System SPED, a tool that unifies the activities of receipt, validation, storage and
authentication of documents and books that integrate the taxpayers commercial
and fiscal bookkeeping, through a single, computerised flow of information and the
use of digital certification.
SPED is an integrated initiative of the federal financial administration for three
different areas: the Digital Fiscal Bookkeeping (Escriturao Fiscal Digital - EFD),
Digital Accounting Bookkeeping (Escriturao Contbil Digital - ECD) and the
Electronic Invoice (Nota Fiscal Eletrnica - NF-e).
The Accounting SPED ECD tool is intended to replace the issuance of hardcopy
accounting books with softcopies. The general journal (livro dirio), general
ledger (livro razo), auxiliary books and the trial balances and balance sheets
will be generated as part of a set of digital documents. The project includes the
presentation of information for the federal, state and, hereafter, municipal tax
authorities, as well as for the National Registration Department of Commerce
(Departamento Nacional de Registro de Comrcio), the Central Bank (BACEN),
SUSEP and the Securities Commission (CVM). These accounting books must be
delivered on the current deadlines.



Audit and accounting


Audited financial statements

The annual financial statements of the following entities must be audited by
independent auditors registered at the CVM, Central Bank and other government
agencies, as applicable:

Listed corporations

Large companies, as defined above

Financial institutions and other entities under the jurisdiction of the Central

Investment funds

Stock exchanges

Insurance companies, and

Private pension funds.

Financial institutions and insurance companies must also have their semiannual financial statements audited. The quarterly financial reports of listed
entities supervised by the Brazilian Securities Commission must be reviewed by
independent auditors.
When a closely held corporation does not have independent auditors, the
companys audit committee (conselho fiscal) may appoint them at the corporations
expense if it is believed that this is necessary for the proper fulfilment of its
Even when not required by regulation or bylaws, banks and other financiers
frequently require audited financial statements from borrowers.
The tax authorities do not require audited financial statements.
Internal auditors cannot be used as statutory auditors.

Chapter 11 | Audit requirements and practices


Audit reports
The auditors conclusions on the independent
audits findings are documented in the
Independent Auditors Report, often
referred to as an audit opinion. The report
presents the auditors conclusions regarding
whether the limitations, if any, placed on
the audit scope have hindered the ability
to form a conclusion, and whether the
financial statements are presented fairly in
accordance with the applicable accounting
framework, such as accounting practices
adopted in Brazil. If there are no significant
limitations on the audit scope, and the
financial statements are presented fairly, the
auditors report is unqualified. If limitations
were imposed on the scope of the audit
procedures, the auditors report will either
be qualified (in material but not severe
circumstances) or contain a disclaimer of
opinion (in severe circumstances), indicating
that the auditors could not form an opinion on
the financial statements taken as a whole. If
the auditors detect significant deviations from
the accounting framework that management
has not rectified, the report will either be
qualified (for material but not pervasive
deviations) or adverse (for pervasive
deviations), indicating that the financial
statements are not presented fairly.


The accounting profession

Professional requirements
There are two classes of accountants in

Contadores (accountants): Accounting

graduates who are permitted to engage
in all types of professional work.

Tcnicos de contabilidade (accounting

technicians): Non-graduates whose field
of professional activity is restricted.

Holders of non-Brazilian university degrees

in accountancy may apply to have them
revalidated in order to practice in Brazil. This
requires sitting examinations on subjects
that the state or federal universities consider
as not having been covered in the courses
taken outside Brazil.
Accountants may practice until their
qualifications have been recognised and
registered by the appropriate Regional
Accounting Council (CRC). Only contadores
may work as auditors.
Auditors are required to pass a technical
qualification exam before working as
auditors. There is a national registration of
independent auditors (Cadastro Nacional de
Auditores Independentes or CNAI) which is
managed by the Federal Accounting Council
(CFC) in order to assess the competence
and skills of accounting professionals who
wish to work as auditors. Additionally, all
auditors of entities regulated by the Central
Bank, CVM and the Private Insurance
Regulator (SUSEP) must pass the
respective additional exams.


Audit and accounting


Independent auditors (individuals or firms) of listed companies in Brazil are subject

to peer review, a quadrennial review of policies and specific engagements by
another independent auditor under a program managed by members of the CFC
and the Institute of Independent Auditors of Brazil (IBRACON).
Federal Accounting Council and Regional Accounting Council
The accounting profession is regulated by an authority called the Federal
Accounting Council (CFC) which is composed of members elected by
representatives of the various Regional Accounting Councils (CRCs). The elected
members of the CFC then elect their president.
The CFC is a supervisory body, interpreting how the law governing the profession
is to be applied and overseeing its enforcement. The CFC is called upon to resolve
any disagreement at the regional level. Both the Federal and Regional Councils
pass judgment on ethical matters. The CFC may submit proposed changes in the
relevant legislation to Congress through the Ministry of Labour or it may be called
upon to present its recommendations.

Institute of Independent Auditors

The Institute of Independent Auditors (IBRACON) is a private institution founded to
complement, but not substitute, the CFC, primarily for technical matters. Preparing
auditing pronouncements is one of its activities. IBRACON also had initiatives to
prepare accounting pronouncements until 2007, but those activities are now the
responsibility of the Accounting Pronouncements Committee (CPC).

Accounting Pronouncements Committee

The Accounting Pronouncements Committee (CPC) was created under the
auspices of Federal Law 11638, which authorised the CVM, the Central Bank and
other regulatory bodies and agencies to enter into an agreement with an entity for
the purpose of studying and disclosing accounting and auditing principles, rules
and standards and, as part of their regular activities, to fully or partly adopt that
entitys pronouncements and other technical guidelines.
The CPC is mostly composed of accountants and also includes, on an equitable
basis, representatives of entities that prepare financial statements, entities that
audit and analyse financial statements, the CFC and universities or research
institutes with renowned expertise in the accounting and capital market areas.

Chapter 11 | Audit requirements and practices



Auditing standards
Financial statements and the accounting
principles reflected therein are
representations of management. The
independent auditors confirm whether the
financial statements conform to published
accounting principles. To do so, they
must examine the financial statements in
accordance with approved Brazilian auditing
The Brazilian Convergence Committee was
created in October 2005 to identify and
monitor the initiatives to be implemented to
make possible the convergence of Brazilian
accounting and auditing standards with the
International Financial Reporting Standards
(IFRS) issued by the IASB and International
Standards on Auditing (ISAs) issued by the
International Federation of Accountants
(IFAC) through the International Auditing and
Assurance Standards Board (IAASB).

In this process of adopting international

auditing standards, the original IFAC
numbering system was maintained to
facilitate the subsequent updates or reviews.
Despite the maintenance of the numbering
system, the structure of Brazilian standards
is classified as professional (includes the
code of ethics ) and technical (ISAs, ISAEs,
ISRSs, ISREs). For example, instead of ISA
210 as issued by IFAC, this standard will be
numbered TA 210; instead of ISRE 2400 this
standard will be numbered NBC TR 2400.
The text above is not a comprehensive
source for assessing and understanding audit
requirements and practices. We strongly
advise you seek help from your accounting
consultants when assessing these matters.

The accounting standards convergence

process is described in Chapter 12. With
respect to auditing standards, this process
resulted in the CFC adopting the IFACs
international auditing and assurance
standards, issued after the clarity project
(1). CFC accordingly issued thirty-seven
auditing and assurance standards in Brazil
in 2009. These new standards apply to the
audits of financial statements for periods
ending on or after December 31, 2010.

(1) At the beginning of 2009, the International Auditing and Assurance Standards Board (IAASB) completed
the clarified version of ISAs (International Standards on Auditing). The ISA Clarity project aimed to clarify
the objectives and responsibilities of independent auditors, to eliminate ambiguities and to facilitate the
implementation of the international standards. In Brazil, the new NBC TAs are being issued according to the
new version of ISAs, after the aforesaid ISA Clarity project.


Audit and accounting


Chapter 12

principles and

Chapter 12 | Accounting principles and practices


Investor considerations

Law 11638, enacted in 2007, has modified the Brazilian Corporate Law
and legislation regarding the Brazilian securities market and the Brazilian
Securities Commission (CVM). Although the accounting professionals,
standard setters and regulators were already committed to seeking
convergence with International Financial Reporting Standards (IFRS), these
modifications to Brazilian Corporate Law were necessary to provide the
flexibility and agility to move forward in that direction.

Although the convergence process is underway and several new Brazilian

accounting pronouncements have been issued to that end, full convergence
with IFRS has not yet been achieved. Several differences remain for the 2010
calendar year, as described in the following section.

Listed companies, financial institutions and insurance companies must

prepare their 2010 consolidated financial statements in full compliance with
IFRS as issued by the IASB. Their stand-alone unconsolidated financial
statements, however, will still be prepared in accordance with accounting
practices adopted in Brazil. Other companies are not required to adopt IFRS
and may prepare their financial statements in accordance with accounting
practices adopted in Brazil.

In order to facilitate an analysis by potential foreign investors, we have

summarised below the requirements of the Brazilian accounting practices and
compared them with international requirements, i.e. IFRS.



Audit and accounting


Summary of the Accounting Practices adopted in Brazil

The Accounting Practices adopted in Brazil
(BR GAAP) are founded upon Brazilian
Corporate Law. At the end of 2007 a new law
(Law 11638) modified the Brazilian Corporate
Law, effective in 2008.
This law was an important step towards
making BR GAAP equivalent to International
IFRS, although several differences still
remain. The local standard setter, the
Accounting Pronouncements Committee
(CPC), was established in 2007 and is
responsible for issuing new Brazilian
accounting standards, which must then
be endorsed by the applicable regulators,
such as the CVM, the Central Bank or the
Private Insurance Regulator (SUSEP).
Representatives of the regulators usually
attend CPC meetings as observers, so they
are familiar with the new standards and can
approve them soon after they have been
finalised by the CPC.
The CVM, the Central Bank and SUSEP
have each issued regulations requiring
that the entities regulated by them
prepare consolidated financial statements
in accordance with IFRS for the 2010
calendar year. These regulated entities
will still prepare their stand-alone financial
statements in accordance with BR GAAP.
Please refer to the section Mandatory
Adoption of the CPCs below.

Except for the consolidated financial

statements mentioned in the previous
paragraph, all legal entities in Brazil shall
prepare their individual or stand-alone
financial statements in accordance with
BR GAAP. Individual financial statements
differ conceptually from separate financial
statements in IFRS. In the individual financial
statements, the investments in subsidiaries,
associates and joint ventures are accounted
for using the equity method, while IFRS
would require them at cost or fair value in
separate financial statements.
From 2008 to the end of 2009, the CPC
issued numerous new standards, referred to
as CPCs, that were essentially translations
of the respective IFRS standards. Only the
following IFRS standards had not yet been
converted into CPCs as of December 31,

Chapter 12 | Accounting principles and practices



IFRS Standard


IFRS 6 Exploration for and

Evaluation of Mineral Resources

Not relevant since the current industry practice in

Brazil is acceptable under IFRS 6.

IAS 26 Accounting and Reporting

by Retirement Benefit Plans

Specific to a particular class of entities. Adoption in

Brazil will require coordination with the pensions

IAS 29 Financial Reporting in

Hyperinflationary Economies

Not significant, since Brazil has not been considered

a hyperinflationary economy since 1998. The CPC is
also discussing with the IASB Brazils approach to
hyperinflationary accounting before issuing the
equivalent standard.

IAS 33 Earnings per Share (EPS)

Although EPS is an important benchmark abroad, it is

not widely used in the Brazilian capital markets, and
the CPC and the CVM have decided not to require
this standard for 2010. However, in the first quarter
of 2010, the CPC and the CVM issued an exposure
draft for comments. The standard will therefore
probably be issued and become effective from 2011

Although not all IFRS interpretations by the IFRIC/SIC have been converted to CPC
Interpretations (ICPCs), the CPC believes this is not an issue due to the nature of the
interpretation. If an issue arises for which there is no ICPC, but an IFRIC interpretation is
available, it is likely management will follow the available IFRIC guidance, in accordance with
CPC 23 (equivalent to IAS 8).
The CPCs are more restrictive than IFRS in that they do not permit some alternatives that are
allowed by IFRS such as:

Revaluation of fixed assets and intangibles.

Presentation of the Statement of Income and the Statement of Comprehensive Income in

a single statement.

The initial adoption of IFRS in Brazil in 2010 is covered by CPC 37, and the initial adoption
of the new CPCs is covered by CPC 43. Companies that adopted IFRS before 2010 followed
IFRS 1 instead of CPC 37. The basic difference between CPC 37 and IFRS 1 is that some of
the exemptions in IFRS 1 are not available for adoption in Brazil in 2010:


Audit and accounting


Exemption not available


Share-based payment transactions

This exemption was eliminated because a CPC

equivalent to IFRS 2 became effective in 2008.

Employee benefits

This exemption was eliminated because a similar

standard in BR GAAP has been in effect since 2002.


This exemption was eliminated because a CPC

equivalent to IAS 17 became effective in 2008.

Cumulative translation differences

This exemption was eliminated because a CPC

equivalent to IAS 21 became effective in 2008.

Investments in subsidiaries, jointly

controlled entities and associates

This exemption is not relevant in Brazil, since it

applies only to separate financial statements, and not
individual financial statements, as described earlier.

Designation of previously
recognised financial instruments

This exemption was eliminated because a CPC

dealing with categories of financial instruments
categories became effective in 2008.

Fair value measurement of financial

assets or financial liabilities at initial

This exemption was eliminated because a CPC

dealing with measurement of financial instruments
became effective in 2008.

Borrowing costs

This exemption was eliminated because there was a

similar standard in BR GAAP.

In accordance with the Statement of Best Practice that deals with the relationship between the
IASB and the other Accounting Standard Setters, the addition of disclosure requirements or
the removal of optional procedures is not viewed as non-compliance with IFRS.

Chapter 12 | Accounting principles and practices


According to the CPC, CPC 37 and CPC 43 were issued with the intention of not
creating any differences between the individual financial statements (under BR
GAAP) and consolidated financial statements (under IFRS), with respect to total
assets, total liabilities, equity and profit or loss for the year, except for the following:
a) BR GAAP allowed companies to maintain pre-existing deferred charges (as
of December 31, 2007) in the balance sheet, provided that they are amortised
over the original planned period (usually between 5 and 10 years) and that
new expenditure is recognised in profit or loss prospectively.
b) In the individual financial statements under BR GAAP investments in
subsidiaries, associates and joint ventures are recorded under the equity
Although the new CPCs are in line with the equivalent IFRS standards, other
differences in opening balances may arise, considering that:

the new CPCs are being implemented in two phases in 2008 and 2010.


CPC 37 has removed some of the initial adoption alternatives, such as those
discussed above.


some companies may initially adopt IFRS and the new CPCs at different
transition dates.

CPC 37 states that when more than one alternative exists for a transaction, the
financial statements prepared under IFRS and BR GAAP shall use the same
CPC is working diligently to eliminate these differences as quickly as possible by
reviewing the current text of the issued IFRS standards. This approach is in line
with the Memorandum of Understanding between the IASB, the Brazilian Federal
Accounting Council (CFC), and the CPC, which states that the goal by the end of
2010 is to eliminate the remaining differences between Brazilian GAAP and IFRS
and engage efforts to obtain the necessary regulatory endorsement to converged



Audit and accounting


Mandatory adoption of the CPCs

The CPCs are issued by the Brazilian Accounting Pronouncements Committee (CPC), and
their adoption is required for all companies once the applicable regulators have approved
them. Please see below a summary of the enforcement of the new CPCs and IFRS by the
relevant regulators:





Consolidated financial statements in accordance with

IFRS beginning in 2010, with early adoption allowed

Individual financial statements in accordance with BR

All CPCs have been approved by the CVM. The CPC
exposure draft process of new standards occurs
simultaneously with the CVMs process.



Consolidated financial statements in accordance with

IFRS for 2010, with early adoption allowed

Individual financial statements in accordance with BR

Although the Central Bank participates in CPC meetings
and the convergence process in general, in practice
only a few CPCs have been approved by this regulator.
Consequently, there might be material differences
between the Individual financial statements prepared
under BR GAAP and the Consolidated financial
statements prepared under IFRS.



Similar to financial institutions

All other


Consolidated and individual F/S prepared in accordance

with BR GAAP, which reflect the new CPCs

The CPC has adopted a standard equivalent to IFRS

for Small and Medium Entities (SME), which is already
effective in Brazil for all companies except:

Listed companies

Large companies (total assets of over R$ 300

million or total revenue greater than R$ 240 million)

Financial institutions

Other entities with relevant public accountability

Chapter 12 | Accounting principles and practices


Companies are following the CVM guidelines, if listed, or the CFC guidelines for
certain rate-regulated activities. In addition, it may be necessary to prepare another
set of financial statements specifically for regulatory purposes.
The text above should not be your only source when assessing and obtaining an
understanding of the differences between BR GAAP and IFRS. We strongly advise
you to seek the assistance of your accounting consultants when assessing the




Chapter 13

Tax system

Chapter 13 | Tax system


Investor considerations

Corporate income tax is computed on the basis of taxable income at a single

tax rate, with a surcharge on income over a certain level.

Net income distributed to shareholders is not taxed at source.

Foreign profits/income/gains of any kind are subject to Brazilian income tax.

Individual taxpayers, including resident foreigners, are taxed on worldwide

income at progressive rates.

Non-residents are taxed only on Brazilian-source income.

Principal taxes
The principal federal, state and municipal taxes are as follows.


Income tax (IR).

Social contribution on net income


Value-added tax on sales and

services (ICMS).

Excise tax (IPI).

Inheritance and gift transfer tax


Import tax (II).

Road tax (IPVA).

Export tax (IE).

Tax on financial transactions (IOF).

Social contribution on billing


Contribution to the Social

Integration Program (PIS/PASEP).

Contribution for Intervention in the

Economic Domain (CIDE).

Rural property tax (ITR).


Service tax (ISS).

Property taxes (IPTU and ITBI).

For details of the principal indirect taxes

see Chapter 22.




Tax guarantees
Tax guarantees do not exist under the
Brazilian tax system.

Legislative framework
Statute law
The Brazilian tax system is primarily
governed by the Federal Constitution and by
the National Tax Code (Cdigo Tributrio
Nacional - CTN), which was consolidated
in 1966. This basic legislation contains all
general provisions, definitions, competences,
procedures, and limitations concerning
the tax system. The CTN is universal and
must be observed by all tax authorities in
the country: federal, state and municipal.
Legislation is frequently introduced and
changed by laws and provisional measures,
but retroactive legislation is not permitted,
except when it benefits the taxpayer and
when the taxable event has not been
completed. Within the executive branch, the
Ministry of Finance has the responsibility of
implementing the tax statutes. This function
is specifically carried out by the Brazilian
Revenue Service (Receita Federal do Brasil
- RFB), whose duties are to interpret the
statutes in accordance with the intent of the
CTN and to enforce them.
The interpretative duties of the Ministry of
Finance and RFB range from the general to
the specific. Regulations are written in broad,
general terms to explain and illustrate the
provisions of the CTN. However, revenue
rulings interpret the CTN only with respect
to specific facts. Revenue procedures are
issued to announce administrative practices
that the RFB follows.

Case law
Judicial interpretations provide varying
degrees of precedent, depending on the
nature of the matter and the jurisdictional
authority of the court that delivered the
opinion. In situations where the statutory
authority alone does not provide a definite
solution for a particular tax issue, the
taxpayer must consult legal counsel as well
as the administrative authorities in order to
resolve the matter. In spite of the absence of
the binding precedent concept as understood
in countries with a common law tradition,
case law usually exerts a tangible influence
over other comparable cases as well as the
decisions of the tax authorities.
Records of disputes in the legislature, as
well as leading professional and academic
opinions, are important sources of
interpretation. Opinions issued by persons of
excellent professional repute help develop
arguments in support of specific cases,
mainly in contentious areas.

Current anti-avoidance legislation is found
in Decree 2730/98. Several provisions in the
National Tax Code prevent taxpayers from
availing themselves of beneficial provisions
of the law in situations where the main
reasons, or one of the primary reasons, for
their actions is to avoid tax.
It should be noted that the anti-avoidance
provisions generally pertain to specific
transactions. In general, it is the courts
attitude that taxpayers have the right to
arrange their affairs in such a manner as to
keep their taxes as low as possible, as long
as the methods employed are legal.

Chapter 13 | Tax system



Form versus substance

Clearance procedures

The general focus of the law and the attitude

of the courts are that substance takes
precedence over form. This is evident,
for example, in the area of related-party
transactions. However, it is possible to
obtain alternative tax results from a given
transaction through proper tax planning.
This opportunity exists only because the law
contains specific provisions authorising the
use of alternative accounting methods and
tax treatments for what in substance are
arguably the same transactions.

It is not necessary to obtain advance

approval from the tax authorities before
entering into significant transactions.
However, in most business with the public
sector a tax clearance certificate (Certido
Negativa de Dbito CND) is required.

It is important to note that Complementary

Law 104/2001 (still pending regulation)
allows administrative authorities to disregard
legal acts or transactions effected with the
objective of dissimulating the occurrence
of a taxable event or the nature of the
elements that constitute the tax obligation,
with due observation of the procedures to be
established by ordinary law.
More recently, Provisional Measure 472/2009
has limited the deductibility for local
corporate income tax purposes of amounts
remitted to tax haven jurisdictions (as stated
in Brazilian legislation), to cases where
operational substance can be allocated
abroad (e.g. identification of the effective
beneficiary of the amounts remitted, proof of
operational capacity of the individual/legal
entity and gathering of documentation related
to the payment of the respective price and
receipt of goods, services and rights).

Public Digital Bookkeeping System

Brazil is currently implementing a new public
digital bookkeeping system known as SPED,
which aims at gradually replacing hard copies
of invoices and tax records for soft copies.
Comprised of three pillars (electronic
invoices, digital fiscal bookkeeping and digital
accounting bookkeeping), the implementation
of SPED requires changes in the relationship
with tax authorities, clients, suppliers and,
mainly, in the internal operational processes,
which will demand an integrated action from
different areas (tax, accounting, IT, supplies,
production, commercial, and others).
Furthermore, occasional inconsistencies
in databases, as well as operational errors
related to tax and accounting information
to be generated, usually unknown to the
companies administration, will be subject
to increased visibility and monitoring by the
Brazilian tax authorities.



The pillars are being implemented in steps. The main objectives of the new
system are to: (i) promote the integration of tax bureaus (federal, state
and municipal) by means of standardising and sharing tax and accounting
information through computer systems (ii) rationalise and standardise auxiliary
obligations for taxpayers and (iii) improve tax assessment procedures. SPED
will be compulsory for all taxpayers in the (near) future. For the time being, it
is being implemented gradually and taxpayers are obliged to issue documents
according to SPED as per different criteria for the different SPED modules.
The files relating to the different SPED modules must generally have their
digital certification approved/validated by a specific program generated by the
Brazilian Revenue Service. The issuance of invoices by electronic means has
already been implemented (in addition to the electronic invoice, a document
named DANFE Documento Auxiliar da Nota Fiscal Eletrnica must be
issued, in a single copy, and sent along with the merchandise in order to
indicate the respective electronic invoice).

Income tax
Concepts of income taxation
Corporate taxable income is taxable under a unitary system whereby a single
tax rate is applied. This rate is currently 15 percent with a surcharge of 10
percent on taxable income over a certain level (see Appendix I). Tax must be
calculated and paid on a monthly or quarterly basis.
As to the relationship between companies and shareholders, Brazil follows
a system in which corporate taxable income is taxed to the company and
distributions of net income to shareholders are not subject to withholding
income tax.
For individual taxpayers the progressive rates of income tax are 0, 7.5, 15, 22.5
and 27.5 percent (see Appendix VI for details).

Social Contribution on Net Income

The Social Contribution on Net Income (CSL) was created with the purpose
of financing the social security system. This contribution is levied at the rate of
9% on the net income for the financial year, before certain legal adjustments
(additions and exclusions).

Chapter 13 | Tax system



Transitional Tax Scheme - RTT

Taxable income

As commented in Chapter 12, Law

11638/2007 introduced new rules to adapt
Brazilian accounting practices to international
accounting standards. In response to such
changes, Law 11941/2009 guaranteed fiscal
neutrality, i.e. no adverse tax consequences
should arise from the adoption of the new
accounting criteria regarding the recognition
of revenue, costs and expenses used to
determine net income. To achieve this result,
Brazilian taxpayers had the option to elect a
Transitional Tax Scheme (Regime Tributrio
de Transio RTT), under which, for tax
purposes only, taxpayers are allowed to
calculate corporate income tax and follow
the applicable accounting criteria before the
enactment of Law 11638/2007.

An individuals taxable income is gross

income minus deductions. In general, gross
income is defined as a taxpayers entire
income minus certain classes of income
specifically excluded by tax legislation. The
term gross income includes net business
income, dividends, interest, gains on the sale
of property, and other accretions of wealth
realised by the taxpayer. However, a gain is
not generally taxable until it is realised. Mere
appreciation in the value of an asset is not
income until it is realised by sale, exchange
or other conversion. Similarly, a loss from
a decline in the value of an asset is not
generally tax deductible until realised.

The transitional tax scheme was optional

for the 2008 and 2009 calendar years
(mandatory as from 2010) and shall remain
in force until a new law is enacted setting
forth the tax effects (if any) stemming from
the new accounting methods and criteria.
It should be noted that electing the RTT
for Corporate Income Tax (IRPJ) results
in the tax scheme also being adopted for
social contribution purposes (CSLL, PIS and

Taxpayer classes
The main groups of taxpayers are:

Resident corporate entities, such as

corporations, private limited-liability
companies (limitadas), branches of
foreign companies, and partnerships.

Resident individuals.

Non-resident corporate entities and


Deductions are allowed only if specified in

the laws and regulations. Business expenses
are ordinarily deductible.
Certain non-business expenses are also
deductible within certain limits.
Corporate entities are subject to tax on
all Brazilian and foreign-source income.
Corporate dividend income is excluded from
gross income in the computation of taxable
Resident individuals taxable income
is computed on a worldwide basis.
Tax is normally deducted at source on
remuneration, earnings and gains, including
capital gains, on a monthly basis. However,
at the end of April each year an annual tax
return must be filed stating the income of
the previous calendar year, whereupon any
discrepancy between the annual amount
payable and amounts deducted or paid at
source is calculated and paid.
Income obtained from Brazil by non-resident
legal entities or individuals is subject
to withholding tax of 15 or 25 percent,
depending on its nature.



Tax year
The tax year (base year) is the calendar year, but tax is due and payable on a
monthly basis (monthly tax periods). For tax purposes the corporate year end
(Corporate balance sheet) is irrelevant, but in practice most companies close their
annual accounts as at December 31. Companies may elect to have their corporate
tax determined and paid on a quarterly basis.
Except for some special cases, no tax rate increases or new taxes can be levied in
the course of a tax year. However, there have been exceptions in the past.

Tax-free zones
There is a major, long-established federal tax-free zone in Manaus and the
Western Amazon area.
States and municipalities grant local tax concessions in order to attract new

Tax holidays
A few tax holidays are offered by the federal government to attract new business
projects in certain areas (see Chapter 4 for further details). Some states and
municipalities that seek foreign investment compete for it by offering incentives
such as property tax holidays and favourable financing. For further information, a
PricewaterhouseCoopers Brazil office in or near the location of interest should be
contacted for details.

Capital taxation
Property transfer taxes are payable at state and municipal levels by companies
and individuals (see Chapter 22 for further details).

No tax is payable at the federal level on the value of a company at incorporation,
on the issuance of shares or on annual net assets.

A wealth tax is provided for in the 1988 Constitution, but legislation has not yet
been drafted.

Chapter 13 | Tax system


International matters
Foreign operations
Brazilian resident companies are taxed on worldwide income. Both foreign branch
and subsidiaries profits are taxed as earned. Double taxation is avoided by means
of foreign tax credits.
Resident individuals are subject to tax on all income from abroad but are allowed
to take credit for the foreign tax paid thereon, provided reciprocal treatment is
accorded to Brazilian-source income in the country from which the income is
Foreign airlines and shipping companies are exempt from Brazilian income tax on
their operations within Brazil, provided equivalent exemption is available to similar
Brazilian companies in the countries concerned.
Brazil has signed various treaties for the avoidance of double taxation. For further
details see Chapter 23.
Fees and other related expenses paid in Brazil for services rendered abroad are
subject to withholding tax of 15 percent or lower treaty rate.

International financial centre operations

There are no tax breaks to encourage the location of multinational companies
headquarters and administrative offices in Brazil and/or the use of Brazil as a base
for offshore financial operations.




Chapter 14


Chapter 14 | Tax administration


Investor considerations

Tax administration is generally based on self-assessment.

Taxes are withheld at source on most income payments.

Corporate income tax is calculated and paid monthly or quarterly. An annual

tax return is usually filed in June of the subsequent calendar year-end.

Consolidated tax returns and/or group relief are not allowed.

Individual income tax is also calculated and paid monthly, and annual returns
are due within four months of the calendar year-end.

Joint returns for married taxpayers are allowed.

Penalties are imposed for failure or delinquency in filing returns or paying tax.

Administration of the tax system

The income tax laws were consolidated by Decree 3000/99 (Regulamento do
Imposto de Renda). The federal government department responsible for income
tax administration is the Receita Federal do Brasil (RFB- Federal Revenue
Service) under the Ministry of Finance, with branches in all states and major
cities. The RFB is also responsible for enforcing the law, including the collection
of taxes, performance of audits and advocacy in tax disputes leading to litigation.
Supplementary regulations are frequently issued by the tax authorities through
ordinances, instructions and normative rulings.
State and local governments are responsible for the administration and collection
of those taxes under their jurisdiction.




Corporate taxpayers
Tax returns


With a few exceptions, all corporate entities

including those that are foreign-controlled
calculate and pay tax on a monthly basis
and file an annual adjusting tax return
consolidating the monthly results of the
previous calendar year. This annual return
must typically be filed by the end of June.
The forms to be used are prescribed annually
and generally include all financial information
required by the authorities.

Corporate income tax is self-assessed

and returns must be filed in the taxpayers
domicile. At the time of filing, all tax returns
are subject to a summary check of the tax
calculation and of the deductions made. They
may subsequently undergo an audit. Tax is
deemed assessed at the moment the return
is filed. Provisional assessments are not

In the case of late submission, penalties may

be charged.
A Companys tax returns must be signed by
a chartered accountant, who need not be
independent. Many companies submit their
tax returns for the review of professional
consultants before filing them with the
authorities. It is not required to attach
financial statements or other data, either
audited or unaudited.
Supporting documentation must be retained
for at least five years.

The authorities may assess taxes when the

following events occur.

No return is filed.

The taxpayer files an incorrect return.

The taxpayer fails to furnish information

requested by tax inspectors or does not
present it satisfactorily.

Proper accounting records have not

been kept by the taxpayer. In this
event, the authorities may disregard the
accounting records in extreme situations
and conduct an arbitrary assessment
based on gross revenue, asset values or
other available data.

Chapter 14 | Tax administration




Withholding taxes

Upon receiving any additional assessment

notification, a taxpayer has 30 days in
which to file an appeal to the local RFB
branch. This initial appeal is submitted
to the authority that issued the additional
assessment. In the event of an unfavourable
decision, a second appeal may be made
to the Taxpayers Council (Conselho
Administrativo de Recursos Fiscais- CARF),
a federal administrative tax court in Braslia,
whose decision normally terminates the
administrative process. Thereafter, a
taxpayer may enter into judicial proceedings
to contest the assessment.

Withholding tax rates are set out in Appendix

IV. Withholding taxes, including those on
employees wages and salaries, are subject
to monthly payments. Such withholding tax
is the responsibility of the employer or the

Claims for recovery of overpaid taxes may be

filed no later than five years after the date of

Payment and collection

Self-assessment, monthly payments,
estimated payments and withholding taxes
are the principal methods by which the
federal government collects corporate taxes.
Self-assessments are generally based on the
monthly tax returns as filed.
If a company has difficulties in determining
its monthly earnings, it can opt for monthly
payments of tax on the presumed taxable
income basis. However, the utilisation of the
presumed basis would not dispense with the
later calculation of the annual taxable income
and presentation of the annual tax return.

Tax audits
Although all income tax returns are checked
for mathematical accuracy, only a relatively
small number are selected for further
examination. Returns are selected for audit
either manually or by computer, according to
various criteria, including type of business,
unusually large or small amounts of income
or deductions and random sampling.
No corporate entity, whether a taxpayer or
not, is excused from furnishing information or
explanations required by the tax authorities.
Furthermore, in certain circumstances
government agencies and other entities
are obliged to disclose information to them
(financial institutions, for example).
When audits are conducted on the premises
of taxpayers, tax inspectors have broad
powers to inspect books and documents and
to request information and any data deemed
necessary. This is generally disrupting and in
practice every effort is made to expedite the
conclusion of these audits.
Whenever a violation is determined during
a tax audit, the inspectors must draw up an
infringement notification which starts the
administrative procedure for additional tax



A fine ranging from 75% to 225% of the tax due is imposed for any irregularities
detected by the tax authorities audits.
Some irregularities are considered to be of a criminal nature and can lead to
Interest on the amount of tax in arrears is payable based on the monthly SELIC
rate, which is presently around 1 percent, together with a fine of 0.33% per day
with a limit of 20%.
When overdue taxes have been negotiated with the tax authorities to be paid in
instalments and an instalment is not paid before the next one is due, the balance
of the tax payable, including outstanding instalments, is considered as payable

Statute of limitations
The tax authorities may generally audit taxpayers up to five years after the close of
the tax year.

Community property/Spouse
As a general rule, each spouse files his/her own tax return, including his/her
income and fifty percent of the income produced by common rights.
However, a joint tax return is also permitted, in which the individual includes all
income. The income is therefore taxed jointly, as a single person. The head of the
household may, accordingly, treat the other spouse as dependent.

Foreign personnel
Foreigners working in Brazil who hold temporary or permanent visas are taxed
as residents on their worldwide income. There are no special rules for foreign
personnel who hold a permanent visa.

Chapter 14 | Tax administration


Exit permits
A foreigner or a Brazilian who leaves the country permanently is required to obtain
tax clearance. This permits official repatriation of funds and the sending back
of other assets. A Brazilian leaving the country on a permanent basis must also
obtain a tax clearance.

Trusts, partnerships and joint ventures

The common law concept of trust does not exist in Brazil.
The procedures for the taxation of partnerships and joint ventures are similar to
those for corporate taxpayers.




Chapter 15


Chapter 15 | Corporate taxation


Investor considerations

Corporate income tax is calculated and paid monthly or quarterly on the basis
of worldwide taxable income.

There is a surcharge on taxable income over a certain level.

There is no distinction in terms of the tax burden between local and foreignowned companies.

Dividends generated as from January 1, 1996 distributed to resident or nonresident beneficiaries (individuals and/or corporate entities) are not subject to
withholding income tax.

Dividend payments are not tax deductible by the distributor.

Dividends received from local entities are excluded from taxable income.

Interest may be paid to shareholders based on a companys net equity and is

deductible for income tax purposes.

Interest paid on loans to foreign shareholders is generally deductible for tax

purposes on an accrual basis, provided that the loan agreement has been
registered at the Central Bank of Brazil (otherwise, the deductibility is limited
to LIBOR rate for U.S. dollar six-month deposits plus a 3% annual spread),
and the debt: equity ratio is observed.

Thin capitalisation rules have been introduced in Brazil, as from December 16,
2009, limiting the deductibility of interest paid or credited by a Brazilian entity
to a related party (individual or legal entity) or to an individual or legal entity
(whether related or not) that is resident or domiciled in a tax haven jurisdiction
(For further details see Chapter 16).

Exchange losses on foreign loans may be deducted on a cash basis.

Nonetheless, the taxpayer may elect to recognize the exchange gain/loss on
an accrual basis.

Inter-company transactions are subject to transfer pricing rules

Consolidated tax returns are not permitted.

Accounting records, as a general rule, shall observe the accrual basis method.




Corporate tax system

Corporate net income is taxed at the corporate level.

Taxable entities

Accounting methods

Corporations, limitadas (private limitedliability partnerships), other partnerships

(except for regulated professional
partnerships), and branches organised in
accordance with Brazilian laws are subject
to corporate income tax. Non-profit entities
that comply with certain registration and filing
requirements are generally exempt.

A legal entity is considered resident in Brazil

and subject to local taxation if it has been
incorporated in Brazil.

All companies are required to determine net

income in accordance with the accounting
principles established in Law 6404/76
(see Chapter 12). In general, the accrual
basis is required for both accounting and
taxation purposes. However, profits on
long-term contracts may be computed on
the percentage-of-completion basis, except
in the case of contracts with the government
or government-owned companies, for which
the profit may be recognised on a cash basis
for tax purposes. Special tax-accounting
methods also apply in other areas and are
discussed below.

The territorial concept for Brazilian corporate

income tax payers was abolished in January
1996. Corporate taxpayers are now taxed
on the basis of their worldwide income. For
further details see Chapter 18.

Please refer to Chapters 12 and 13 for

further details on the new accounting
practices effective in Brazil as from 2008 and
the corresponding transitional tax scheme
currently applicable.

Accounting period

Business profits

Corporate income tax is generally computed

on the basis of annual taxable income.
Although companies may elect to compute
tax on a quarterly basis, for tax purposes
a companys year-end is December 31. A
different year-end for corporate purposes is
irrelevant for tax purposes.

For tax purposes, business profits are

computed on the basis of net income, as
reported in the statement of income (profit
and loss account), adjusted for non-taxable
income and non-deductible expenses.


Chapter 15 | Corporate taxation



Inter-company transactions
Transfer Pricing Rules
Brazils transfer pricing rules, which became
effective on January 1, 1997, do not adopt
the internationally accepted arms length
principle. Instead, Brazils transfer pricing
rules define maximum price ceilings for
deductible expenses on inter-company import
transactions and minimum gross-income
floors for inter-company export transactions.
The rules address imports and exports
of products, services and rights charged
between related parties, inter-company
financing transactions not registered at the
Central Bank of Brazil, as well as all import
and export transactions between Brazilian
residents (individual or legal entity) and
residents in either low-tax jurisdictions
(as defined in the Brazilian legislation) or
jurisdictions with internal legislation that call
for secrecy relating to corporate ownership,
regardless of any relation.
The rules require that a Brazilian company
substantiate its inter-company import
and export prices on an annual basis by
comparing the actual transfer price with a
benchmark price determined under any one
of the Brazilian equivalents of the OECDs
comparable uncontrolled price method (CUP
method), resale price method (RPM) or
cost plus method (CP method). Taxpayers
are required to apply the same method,
which they elect, for each product or type
of transaction consistently throughout the
respective financial year. However, taxpayers
are not required to apply the same method
for different products and services.

Rules regarding imports of goods,

services or rights
Deductible import prices relating to the
acquisition of property, services and rights
from foreign related parties should be
determined under one of the following
three Brazilian equivalents of the OECDs
traditional transaction methods:

Comparable independent price method

This Brazilian equivalent of the CUP method
is defined as the weighted average price
for the year of identical or similar property,
services or rights obtained either in Brazil or
abroad in buysell transactions on similar
payment terms. For this purpose, only buy
sell transactions conducted by unrelated
parties may be used.

Resale price less profit method (PRL)

This Brazilian equivalent of the RPM was
originally defined as the weighted average
price for the year of the resale of property,
services or rights minus unconditional
discounts, taxes and contributions on sales,
commission and a gross profit margin of
20% calculated based on the resale price
(minus unconditional discounts). If value
is added before resale, the margin profit
is increased to 60%, calculated based on
the percentage of the value imported over
the final resale price. In applying the PRL,
a Brazilian taxpayer may use their own
prices (wholesale or retail), established with
unrelated parties.



It is important to mention that a Provisional Measure (PM) published on December

29, 2009 proposed an amendment to the Brazilian transfer pricing legislation, in
order to change the PRL Method. This change should be in effect as of January
1, 2010. Under the new provision, the resale minus method would apply the
same way for imports of products for resale or for consumables to be used in a
manufacturing process. The new Sales Minus Method (PVL) should be calculated
considering a margin of 35%, as opposed to the previous 20% applicable to
products for resale and the 60% applicable to consumables. By the date this
Chapter had been reviewed the proposed changes had not been analyzed by the
Brazilian Congress, which should take place before June 1, 2010.

Production cost plus profit method (CPL)

This Brazilian equivalent of the CP method is defined as the weighted average cost
incurred for the year to produce identical or similar property, services or rights in
the country where they were originally produced, grossed up for taxes and duties
imposed by that country on export plus a gross profit margin of 20%, calculated
based on the obtained cost. Production costs for the purpose of the CPL are
limited to the costs of goods, services or rights sold. Operating expenses, such as
research and development (R&D) and selling and administrative expenses, may
not be included in the production costs of goods sold to Brazil.
In the event that more than one method is used, the method that provides the
highest value for imported products is considered by the Brazilian tax authorities
as the appropriate import price. This is intended to provide taxpayers with the
flexibility to choose the method most suitable to them. The Brazilian rules require
that each import transaction be tested by the benchmark price determined using
one of the three methods, as applicable to the type of transaction (this also applies
to export transactions).
If the import sales price of a specific inter-company transaction is equal to or less
than the benchmark price determined by one of the methods, no adjustment is
required. On the other hand, if the import sales price exceeds the determined
benchmark price, the taxpayer is required to make an adjustment to the calculation
basis of income tax and social contribution.
The aforementioned excess must be accounted for in the retained earnings
account (debit) against the asset account or against the corresponding cost or
expense if the good, service or right has already been charged to the income

Chapter 15 | Corporate taxation


Rules regarding exports of goods,

services and rights
In the case of export sales, the regulations
provide a safe harbour whereby a taxpayer
is deemed to have an appropriate transfer
price with respect to export sales when
the average export sales price is at least
90% of the average domestic sales price
of the same property, services or intangible
rights in the Brazilian market during the
same period under similar payment terms.
When a company does not conduct sales
transactions in the Brazilian market, the
determination of the average price is based
on data obtained from other companies that
sell identical or similar property, services,
or intangible rights in the Brazilian market.
When it is determined that the export sales
price is less than 90% of the average sales
price in the Brazilian market, the Brazilian
company is required to substantiate its export
transfer prices, based on the benchmark
obtained using one of the following Brazilian
equivalents of the OECDs traditional
transaction methods:

Export sales price method (PVEx)

This Brazilian equivalent of the CUP method
is defined as the weighted average of the
export sales price charged by the company to
other customers or other national exporters
of identical or similar property, services or
rights during the same tax year on similar
payment terms.


Resale price methods

The Brazilian versions of the RPM for export
transactions are defined as the weighted
average price of identical or similar property,
services or rights in the country of destination
on similar payment terms reducing by the
taxes included in the price imposed by that
country and a profit margin of either:

15%, calculated according to the

wholesale price in the country of
destination (wholesale price in country of
destination less profit method, or PVA).

30%, calculated according to the retail

price in the country of destination (retail
price in country of destination less profit
method, or PVV).

Purchase or production cost plus taxes

and profit method (CAP)
This Brazilian equivalent of the CP method
is defined as the weighted average cost
of acquisition or production of exported
property, services or rights increased for
taxes and duties imposed by Brazil plus a
profit margin of 15%, calculated based on the
sum of the costs, taxes and duties.
In the event that the export sales price of a
specific inter-company transaction is equal
to or more than the transfer price determined
by one of these methods, no adjustment is
required to be made. On the other hand,
if the export sales price of a specific intercompany export transaction is less than
the determined transfer price, the taxpayer
is required to make an adjustment to the
income tax and social contribution calculation



Rules regarding interest on debt paid to

an overseas related party
The statutory rules provide that interest on
related-party loans that are duly registered at
the Central Bank of Brazil will not be subject
to transfer pricing adjustments. However,
interest paid on loans issued to a related
party that is not registered at the Central
Bank of Brazil is deductible only to the extent
that the interest rate equals the LIBOR dollar
rate for six-month loans plus 3% per year
(adjusted to the contracts term). The actual
amount of the interest paid on the loan in
excess of this limitation will not be deductible
for income tax and social contribution
Similarly, loans extended by a Brazilian
company to an overseas related party that
are not registered at the Central Bank of
Brazil must charge interest at least equal to
the LIBOR dollar rate for six-month loans
plus 3%.

Rules regarding royalties and technical

The statutory rules expressly exclude
royalties and technical, scientific,
administrative or similar assistance
remittances from the scope of the transfer
pricing legislation. Accordingly, provisions
of the Brazilian income tax law established
before the Brazilian transfer pricing rules
came into effect still regulate the remittances
and deductibility of inter-company payments
for royalties and technical assistance fees.

Definition of related parties

Brazils transfer pricing rules provide a
much broader definition of related parties
than do internationally accepted transferpricing principles. As described further on,
the regulations go so far as to characterise
overseas parties as being related when such
parties are located in low-tax jurisdictions,
regardless of whether a relationship exists
between them.
Under the statutory rules, a foreign company
and a Brazilian company may be considered
related if the foreign company owns as little
as 10% of the Brazilian company, or when
at least 10% of the capital of each of them is
owned by the same person.
Additionally, regardless of any underlying
relationship, the Brazilian definition of
related parties considers a foreign party
to be related to a Brazilian company if, in
the case of export transactions, the foreign
party operates as an exclusive agent of
the Brazilian company or, in the case of
import transactions, the Brazilian company
operates as an exclusive agent of the foreign
party. For these purposes, exclusivity is
evidenced by a formal written contract, or
in the absence of one, by the practice of
commercial operations relating to a specific
product, service or right that are carried out
exclusively between the two companies or
exclusively via the intermediation of one of

Chapter 15 | Corporate taxation


Companies located in low-tax jurisdictions or jurisdictions that allow

secrecy in regard to corporate ownership
Under the regulations, the transfer pricing rules apply to transactions conducted
with a foreign resident, even if unrelated, that is domiciled in a country that does
not tax income or that taxes income at a rate of less than 20% or in a jurisdiction
with internal legislation does not allow acess to information relating to corporate
ownership and/or acess to information relating to the actual beneficiary of earnings
attributed to non-Brazilian residents. For these purposes, the tax legislation of the
referred country applicable to individuals or legal entities is considered, depending
on the nature of the party with which the transaction was carried out.
As from January 1 , 2009, the provisions regarding prices, costs and interest rates
related to transfer pricing regulations are also applied to transactions performed in
privileged tax regime, between individuals or legal entities resident or domiciled in
Brazil and any individuals or legal entities, even if not related, resident or domiciled
abroad, according to Law 11727/2008.

Current documentation requirements

Transfer pricing information must be provided to the tax authorities on an annual
basis, as part of the information contained in the income tax return (Declarao
de Informaes Econmico-Fiscais da Pessoa Jurdica, or DIPJ). As a result,
taxpayers have to make a detailed disclosure of their inter-company import and
export transactions, the method applied to test the inter-company price for the
49 largest import and export transactions, and the amount of any adjustments to
income resulting from the application of the method to a specific transaction during
the financial year in question.

Divergence margin
For inter-company import and export transactions, even if the actual price is above
the determined transfer price (for import transactions) or below the determined
transfer price (for export transactions), no adjustment is required as long as the
actual import price does not exceed the determined transfer price by more than 5%
(i.e. as long as the actual export price is not inferior to the calculated transfer price
by more than 5%).




Relief of proof rule for inter-company

export transactions
In addition to the statutory 90% safe harbour
rule for inter-company export transactions,
there is a secondary compliance rule (herein
referred to as the relief of proof rule)
whereby a taxpayer may be relieved of the
obligation to substantiate the export sales
price to overseas related parties using one of
the statutory methods if it can demonstrate
either of the following:
1. the net income derived from intercompany export sales, taking into
account the annual average for the
calculation period and the two preceding
years, excluding companies in low-tax
jurisdictions and transactions for which
the taxpayer is permitted to use different
fixed margins, is at least 5% of the
revenue from such sales, or
2. net export revenue does not exceed 5%
of the taxpayers total net revenue in the
corresponding financial year.
If a taxpayer can satisfy the relief of proof
rule, the taxpayer is able to prove that
the export sales prices charged to related
overseas parties are adequate for Brazilian
tax purposes by only using the export
documents related to those transactions.

Inventory valuation
Inventories must be valued at the lower of
cost or market value. The average purchase
or production cost is normally used. Tax
rulings have been made to the effect
that LIFO is not an acceptable valuation
method and that standard costs must be
reverted to actual cost at least quarterly.
Provisions for inventory obsolescence or
loss of value are not allowable deductions
until the corresponding items have been
disposed of or destroyed. A certificate must
be obtained to substantiate the destruction.
Manufacturing costs to be inventoried
include all direct costs (material, labour and
Special valuation methods are available
for farmers, securities dealers and certain
other taxpayers. Most importantly, valuation
methods must clearly reflect income and
conform as nearly as possible to the best
accounting practice in the trade or business.
There must be conformity between book and
tax reporting.
Further tax regulation on this subject is
expected in view of the new Brazilian
accounting standards laid down by the new
Corporate Law and other related provisions.

Capital gains/losses
Capital gains are taxed as ordinary income.
The cash basis may be used to compute
profits on certain long-term sales of
permanent assets.
Capital losses may only be offset by capital
gains. Unused capital losses are treated
similarly to income tax losses with regard
to limits on use and carry forward period
(see deductions losses further on in this

Chapter 15 | Corporate taxation



Financial income
Financial income is taxed at the following rates:
Prepayment of income tax

Year-end Calculation
(income tax and social
contribution tax)

Net capital gains on

equities traded on the stock


Income: 34%

Net capital gains on futures,

options or forwards, traded
in the Futures Stock and
Commodities Exchange,
similar markets; or capital
gains on flexible options, out
of the exchanges

22.5% = investment period

<180 days

Losses: carried forward to

be compensated against
future gains of the same

20% = 181< investment

period<360 days
17.5% = 361<investment
period<720 days

Income: 34%
Losses: carried forward to
be compensated against
future gains of the same

15% = investment period

>721 days
Investment in Variable
Investment Funds


Swap Transactions

22.5% = investment period

<180 days

Income: 34%
Losses: tax deductible

20% = 181< investment

period < 360 days
period<720 days
15% = investment period >
721 days
(for contracts signed before
31/12/2004 = 20%)

Income: 34%
Losses: tax deductible
under certain conditions



Capital gains and interest

on fixed-income investments
including fixed-income
investment funds, whose
average portfolio term is
shorter than 360 days

20% semi-annual + positive

difference between effective
income tax rate depending
on the holding period, if any:

Income: 34%
Losses: tax deductible

22.5% = investment period

<180 days
20% = 181 < application
period< 360 days

Day Trade


Income: 34%
Losses: tax deductible

Capital gains and interest

on fixed-income investments
including fixed-income
investment funds, with an
average term in excess of
360 days

15% semi-annual + positive

difference between effective
income tax rate depending
on the holding period, if any:

Income: 34%
Losses: tax deductible

22.5% = investment period

<180 days
20% = 181<investment
period < 360 days
17.5% = 361<investment
period<720 days
15% = investment period
>721 days

At the year-end, gains compose the operational income basket and prepayments or
withholdings are offset against the final tax due. Losses on variable income transactions
(equity, options, futures and forwards) are temporarily not tax deductible but may be carried
forward to be offset against gains of the same kind (shares and derivatives). Day trade
transactions have a special tax treatment.
Gains from the sale of depreciable property are treated as ordinary non-operating income and
not as capital gains.
Financial income is not subject to the PIS/PASEP and COFINS taxes. Nevertheless, income
from hedge operations and from interest on net equity is subject to the PIS/PASEP and
COFINS taxes at the rates of 1.65% and 7.6%, respectively.
Please note that financial institutions are generally not subject to withholding income taxes
on capital gains and income yielded by investments in the financial and capital markets.
Nevertheless, these earnings are counted for the purpose of determining corporate income
tax. Moreover, financial income is also subject to the PIS/PASEP and COFINS taxes at the
rates of 0.65% and 4%, respectively.

Chapter 15 | Corporate taxation


Interest income is taxable on the accrual basis.

Dividends/Inter-company dividends
Dividends received from other local companies including subsidiaries and affiliates
are not subject to corporate income tax.

Stock dividends
Dividends are not subject to withholding income tax and the recipient is not subject
to corporate income tax.

Dividends in kind
The payment of dividends in kind is not prohibited by corporate law, provided that
specific rules and terms are clearly defined in the Articles of Association or the
payment is approved at the Annual Shareholders Meeting.

Royalties and service fees

Royalties and service fees received by Brazilian residents are taxable on an
accrual basis.

Exchange gains and losses

Corporate taxpayers may elect to include exchange gains and losses in their
taxable income, on an accrual basis or when realised.

Non-taxable income
The following types of income are non-taxable for corporations (Sociedades
Annimas S/A):

Credits arising from the equity pick-up method of accounting for investments
in subsidiary and associated companies (same tax treatment for all

Premiums on the issuance of shares and debentures.

Proceeds from the sale of participation and subscription rights.

Profit on the sale of Treasury stock.

Subventions received for capital investments.




Business expenses
In general, all ordinary and necessary
expenses paid or incurred in the course of
business are deductible. Minor expenditure
on capital assets or any expenditure on
capital assets with a useful life of less than
one year is also deductible. Territorial limits
are not in themselves a factor in determining
the deductibility of expenses. There are no
prohibitions against payments to affiliates if
they involve an arms-length charge. Such
payments may be subject to Transfer Pricing
rules (see Non-deductible items below).
The following costs/expenses are generally
deductible for tax purposes: lease and rental
expenses; depreciation and amortisation;
maintenance and repair; taxes and related
fees/contributions; insurance premiums; any
other costs or expenses not effectively and
directly connected with the production or sale
of goods, products or services, may not be
considered deductable for tax purposes.

Depreciation and amortisation

Except for land, which is not depreciable,
the depreciation incurred on property, plant
and equipment is an allowable deduction.
The regulations do not establish depreciation
methods, but the annual straight-line rates
listed in Appendix II can be considered
as normally acceptable for tax purposes.
However, in special cases when the rates
listed do not reflect the real depreciation
period it is possible to obtain different rates
provided evidence that these rates are
incompatible is presented, such as reports
prepared by specialised technical entities. If
assets are not used in the production or sale
of products or services, the depreciation or
amortisation thereof would not be deductible
for tax purposes.

Amortisation of goodwill that arises as a

result of accounting for investments in
subsidiary and associated entities by the
equity pick-up method is deferred for taxation
purposes until the related investment has
been realised. However, under certain
requirements, goodwill paid upon the
acquisition of the shares or quotas of a
permanent investment may be amortised
before this realisation occurs. It is important
to note that, although still applicable for tax
purposes (until further regulation is issued),
the amortisation of goodwill is no longer
accepted under Brazils new accounting
Amortisation of patents, trademarks and
copyrights, based on their legal limited life, is
a deductible expense within approved limits.

Formation, start-up, pre-operating and

expansion expenses
As a general rule, for tax purposes these
expenses may be deferred and amortised
on the straight-line basis over a period of not
less than five years, beginning the month in
which the business starts operating.

Leasing agreements
A leasing company is considered to be a
financial institution and is authorised to
operate by the Central Bank. Only financial
leases are applicable. Lease payments are
treated as an operating expense by the
lessee and are generally deductible for tax
purposes if the leased assets are used in the
ordinary course of business.

Chapter 15 | Corporate taxation


Depletion allowances may be made for
natural resources on a useful-life basis.
Special incentive depletion allowances based
on gross revenue are granted for mining
operations, except for those commencing
after December 1987.

Interest and financial charges

All interest and financial charges paid or
accrued in the taxable year are generally
deductible, including those paid or accrued to
a local or foreign affiliated company. Interest
credited to the beneficiary on foreign loans is
generally subject to 15 percent withholding
tax at source and the deductibility thereof
is subject to the new thin capitalisation
rules introduced in December 16, 2009,
as mentioned previously. Interest on the
financing of property, plant and equipment
incurred in the pre-operational stages of
a business venture may be deferred for
future amortisation, and should normally be
deferred for income tax purposes.

Interest on net equity

Since January 1996 companies have been
able to pay interest to share/quotaholders
based on the companys net equity. This
interest, which may not exceed 50% of
the annual profits or retained earnings, is
deductible for income tax and corporate
social contribution purposes, and is generally
subject to 15% withholding income tax (both
for beneficiaries resident in Brazil or abroad),
rising to 25% if the non-resident beneficiary
is resident/domiciled in a low-tax jurisdiction,
according to Brazilian legislation. It is
calculated on the pro rata tempore basis and


up to a given rate is known as the long-term

interest rate. Whenever the beneficiary is a
corporate entity subject to normal income
tax in Brazil, the tax withheld at source may
be taken as a tax credit against the normal
corporate income tax due. Alternatively, this
tax credit can be offset against income tax
due at source on interest payments. This
interest is not subject to further tax if the
beneficiary is a Brazilian resident individual.

Royalties and service fees

For tax deduction purposes, royalties,
license fees, technical assistance and similar
charges, together with the amortisation of
patent costs, may not in total exceed certain
percentages of net sales revenue of the
related products. Except in cases covered
by specific tax incentives, the highest total
deductible charge permitted for certain
industries only is 5 percent. The maximum
payment for the use of trademarks and trade
names is 1 percent of the corresponding net
sales. Formal agreements must be registered
at the National Institute of Industrial Property
(Instituto Nacional de Propriedade Industrial INPI) in support of all such charges.
Registration with the Central Bank of Brazil is
also necessary for the remittance of foreign
Royalty fees for license agreements without
INPI approval are not deductible.
Royalties payable to a foreign company with
a direct or indirect controlling interest in a
Brazilian company are deductible for tax
purposes, provided the contract has been
duly registered by the INPI.



There is no withholding tax on royalties and

service fees etc, paid to resident parties.
However, payments of royalties and technical
assistance service fees to foreign recipients
are subject to 15 percent withholding
income tax, rising to 25% if the non-resident
beneficiary is resident/domiciled in a lowtax jurisdiction, as defined by Brazilian
legislation. In addition, remittances of
royalties and service fees are subject to the
Contribution for Intervention in the Economic
Domain (CIDE), at the rate of 10% based on
the amounts credited/paid. CIDE is levied
on the local entitys cost and is not therefore
creditable to non-residents.
Depending on the nature of the remittance
to the foreign beneficiary, the respective
payment/credit may fall under one of the
services subject to the Municipal Services
Tax - ISS. Under the prevailing legislation,
ISS is not levied on the licensing of patents
and copyrights. Nevertheless, as stated in
Complementary Law 116/2003, licenses to
use/exploit trademarks and software have
been subject to ISS since August 2003. The
Brazilian entity is responsible (on behalf of
the non-resident) for withholding and paying
the tax to the municipal authorities, at rates
ranging from 2% to 5%.
In general, remittances of royalties are
not subject to the PIS and COFINS taxes,
as these social contributions apply to the
import of goods and services (since May
2004). Nevertheless, once characterised as
a service for ISS purposes (e.g. software
licensing), the federal tax authorities may
also demand payment of the PIS and
COFINS taxes, at the rates of 1.65% and
7.6% respectively.

Lastly, remittances of royalties/technical

assistance service fees abroad (i.e. foreign
exchange transactions) are subject to the Tax
on Financial Transactions IOF, at the rate
of 0.38%.
It should be noted that operations involving
royalty agreements are not subject to transfer
pricing rules if the related contract has been
registered at the Central Bank and the INPI.
For information about service fees paid
to associated foreign companies, please
refer to our comments on transfer pricing
regulations above.

Employee remuneration
Employees wages and salaries and related
social security contributions are fully
deductible and no restrictions or limitations
specifically apply to foreign personnel.
Monthly contributions to the Employee
Severance Indemnity Fund (FGTS) are
deductible, as are expenses related to
group medical care and health insurance
programmes for employees, contributions to
private supplementary pension schemes and
meals supplied to all employees indistinctly.
Schooling expenses of employees children
are deductible if this benefit is given to all
employees or considered as a benefit.
Directors and Officers remuneration is also
deductible, although payments made at the
discretion of the employer are not considered
as remuneration, and are not therefore

Chapter 15 | Corporate taxation



Insurance premiums

Doubtful accounts receivable

There are no limits for income tax purposes.

However, insurance cannot be placed with
overseas companies unless specifically
authorised by the government agency which
deals with the insurance industry. Selfinsurance reserves are not deductible.

Deductions relating to doubtful accounts

receivable must follow specific procedures
connected to the value of the credits,
outstanding periods, whether there is a
guarantee or not, the debtors solvency
situation and the existence of judicial
procedures. In general terms there is no
problem relating to deductibility, provided
that complete supporting documentation is

Inter-company charges
In general, inter-company charges are
deductible when they correspond to actual
services rendered and to the extent they
are deemed necessary to the Brazilian
companys activities. Such charges must
be established on an arms length basis.
Amounts paid to foreign associates are
subject to exchange control regulations and
transfer pricing rules.
It should be noted that charges by foreign
associates for management, general and
administrative expenses are subject to close
scrutiny by the Tax and Exchange Control
authorities, and remittance permission may
be challenged by the relevant authorities.

Travel expenses in general are deductible,
provided they are duly documented and
substantiated. However, meals of share/
quotaholders and/or senior management are
generally not deductible (see non-deductible
items further on).

Taxes and contributions

All taxes (except corporate income tax
and the social contribution on net income),
compulsory contributions and related costs,
such as interest on arrears, are deductible
for tax purposes on an accrual basis. This
rule does not apply to taxes/contributions
being or to be contested by the taxpayer, at
any level of litigation, which are deductible
for tax purposes only on a cash basis. Taxes
and other charges on assets not used in
the production or sale of goods, products or
services are also not considered deductible.
Withholding tax on income paid to nonresidents, which is assumed by the payer, is
deductible if the underlying payment itself is
deductible. Punitive tax/contribution penalties
are not deductible.

Charitable donations
Donations are deductible up to certain limits
if the recipients are registered as charitable



Deferred compensation

Non-deductible items

Contributions to qualified deferred employee

compensation plans may be deductible,
within limits, in the year of contribution.

As a general rule and except for the specific

items listed immediately below, amounts paid
or credited for the furtherance of business
activities are considered deductible.

Expenditure on repairs that result in an
increase of more than one year in the
estimated useful life of related assets is not
deductible and should normally be capitalised
in order to support future depreciation.

Professional fees
Professional fees are deductible, subject
to proof the services have actually been
rendered, as well as compliance with the
general deductibility rules.

Advertising is deductible on the accrual
basis. The cost of free samples is not

Research and development

At the option of the company and for tax
purposes, research and development
expenditure may be deducted when incurred
or deferred until the end of the project and
then amortised over a period of not less than
five years.
In 2005 Brazilian legislation introduced
tax incentives for projects geared towards
technological innovation.

Meals (food) expenses incurred or

paid on behalf of partners, share/
quotaholders and senior management

Noncompulsory contributions and

donations (with very few exceptions).

Gifts in general.

Where the beneficiary or nature of a

transaction is unidentified, the related
payments are also subject to a 35 percent
withholding tax at source, which is in effect a
penalty tax.
Disguised profit distributions are nondeductible expenses and recipients are
required to pay tax thereon. In general,
disguised profit distributions arise as a
result of failing to conduct transactions with
shareholders (whether corporate entities
or individuals), directors, officers and their
relatives on an arms-length basis.
Provisions in general are not deductible,
except those for holiday pay and 13th month
salaries. The technical reserves of insurance
and capitalisation companies, however, are
deductible under certain special conditions.

Equity investments
Provisions for probable losses on the
realisation of equity investments are not
considered deductible.

Chapter 15 | Corporate taxation




Presumed profits

Tax losses may be carried forward

indefinitely. However, tax loss offsetting is
restricted to 30 percent of taxable income
in each subsequent year. For this purpose
a loss is defined as an accounting loss
adjusted for tax purposes. Tax losses may
not be carried back. Certain forms of tax
losses may be cancelled, such as those
resulting from mergers and spin-offs, and
may not be used by the survivor and/or

Corporate taxpayers with gross annual

revenue not exceeding R$ 48 million
(approximately USD 27 million) may opt
to pay tax on a presumed-profit basis.
Under this method, income is calculated
on a quarterly basis and shall correspond
to certain percentages applied over gross
revenue, adjusted as determined by the
prevailing legislation. Such percentages vary
depending on the entitys activities.

Additionally, tax losses may be cancelled

when a company simultaneously undergoes
a change in control and business activity.
Nonoperating losses may only be offset
against profits of the same kind, up to the
limit of 30 percent of such annual profits.

Tax computation
Net income
Taxable income is computed by adjusting
net book income for non-taxable income
and non-deductible expenses. A sample
corporate tax computation can be seen in
Appendix III.

Tax rates
The single federal income tax rate for
corporate taxable income is 15 percent,
but there is a surcharge of 10 percent on
annual taxable income above R$ 240,000
(approximately USD 140,000) (see
Appendix I).

The corporate income tax rate of 15

percent, plus a surcharge of 10 percent on
quarterly taxable income above R$ 60,000
(approximately USD 34,000), is levied on
the product resulting from applying the
percentages and related adjustments. For
further details see Appendix III.
The annual adjusting corporate tax return
for presumed profits must be filed by the
same date the regular income tax return
is due; normally by the end of June of the
subsequent year.

Arbitrary profits
The Tax authorities may assess tax based
on arbitrary profits (profits discretionally
assumed to exist) if a taxpayer fails to comply
with the rules and regulations for keeping
records and/or computing taxable income.
The taxable income basis would be arbitrated
based on the presumed percentage of profits
attributable to each type of activity, ranging
from 1.92 % to 38.4 % of gross monthly
revenue. The amount of tax determined
would then be grossed up by 20 percent
(45 percent for financial institutions). When
the gross revenue is unknown, the federal
tax authority uses several other methods to
determine the taxable income (e.g. based
on the latest adjusted financial statements,
adjusted capital and others).



Tax credits
Foreign tax credits are available subject to certain limits. There are no other
specific tax credits.

Consolidation - Group relief

Consolidated income tax returns are not permitted in Brazil.

Other taxes
Social Contribution on Net Income
Monthly corporate net income, before income tax and after some deductions, is
subject to the social contribution on net income at the rate of 9 percent, except in
the case of insurance and financial institutions, which are subject to a 15% rate (for
further details see Appendix III).

Social Integration Program - PIS/PASEP

This contribution is levied at the rate of 1.65 percent on gross income, considered
to be the sum of the companys total revenue, minus taxes not grossed up in the
sales invoice, such as Excise Tax - IPI, unconditional discounts, cancelled sales,
goods and service exports revenue and other legal deductions. Based on the noncumulative basis, companies may appropriate credits by applying the same rate to
certain costs and expenses deriving from the acquisition of certain consumables.
Companies electing the presumed-profit basis and those engaged in certain
sectors such as telecommunications and finance, are subject to the PIS/PASEP
taxes at the rate of 0.65 percent, but cannot offset credits (cumulative basis).
Special rates apply to specific sectors such as automobiles, pharmaceuticals,
beverages and petroleum products. The contribution is also levied on import

Social Contribution on Billing - COFINS

This contribution is currently levied at the rate of 7.6% and has the same taxable
basis and credit regime as the PIS tax mentioned above. Companies under the
cumulative basis are subject to COFINS at the rate of 3.0 percent. The contribution
is also levied on import transactions.

For further details see Chapter 22.

For a detailed description of all significant indirect taxes see Chapter 22.

Chapter 15 | Corporate taxation


Branches versus subsidiaries

The advantages and disadvantages of operating in Brazil as a subsidiary versus
a branch are discussed in Chapter 16. Very few branches of foreign entities are
operating in Brazil.

Special industries
There are a number of corporate categories for which the income tax regulations
provide special treatment, the most important of which are as follows.

Insurance companies are allowed to make a special deduction for the technical
reserves required by law.

Real estate
In the case of instalment sales, taxable income may be determined on the cash

Leasing companies are regulated by the Central Bank of Brazil, and optional
accounting and tax methods are applicable.

Agricultural enterprises
These enterprises may take a deduction from taxable income for certain specified
investments in land improvements, plant and equipment.

Mutual and investment funds

Generally, investors may pool their funds in order to obtain investment diversity
and proportional investment advice from the funds administrators. Tax is payable
at source only at varying rates.

Holding companies
There are no special rules for holding companies, and they are taxed in the same
manner as other corporate taxpayers. They are required to account for their
material investments by the equity pick-up method. Dividend income received from
other local corporate entities is non-taxable. Any income received from foreign
affiliates is taxable.




Corporate tax planning strategies

Subsidiaries versus branches
Foreign investors are advised to incorporate
operations in Brazil instead of setting up
branches, as in the latter case non-residents
must file a application to the Ministry of
Commerce, Industry and Development to
obtain authorisation to operate in Brazil.

Reorganisations, mergers and


Joint ventures

Companies can be reorganised tax free

under certain conditions. Further tax
regulation on this subject is expected in view
of the new Brazilian accounting standards
laid down by the new Corporate Law and
other related provisions (see Chapter 13 for
details) .

There are no tax advantages or

disadvantages for joint ventures in Brazil.

The tax basis of assets can be stepped up

through acquisitions under certain conditions.

Holding companies

Both buyer and seller must allocate costs in

asset purchases or deemed asset purchases.

There is no legislation that favours foreign

shareholders or holding companies.

Tax treaties

Special industry companies/Special-use


Relief from double taxation is applicable. See

Appendices IV and V for details.

Companies participating in certain sectors,

such as banking, insurance, leasing, etc., are
subject to special tax rules.

See Appendices XIV and XV for other points

to consider when setting up, structuring or
acquiring an investment in Brazil.

Tax holidays are offered by governments for
certain industries installed in specific areas
(see Chapter 4).

Chapter 15 | Corporate taxation





Chapter 16

of foreign

Chapter 16 | Taxation of foreign corporations


Investor considerations

Subsidiaries of foreign corporations receive the same tax treatment as local


Dividends payable by subsidiaries of foreign corporations to foreign

shareholders are not subject to withholding income tax.

Foreign corporations are not normally subject to tax on income arising from
their export sales to Brazil.

Local salesmen/agents with authority to enter into binding contracts may

increase the tax exposure of exporters in Brazil.

Administrative and similar service charges from overseas head offices

or affiliates to Brazilian subsidiaries should be considered necessary,
actually incurred and properly documented for tax purposes and remittance
procedures must be carried out based on Central Bank of Brazil regulations.

Tax concepts
The basic taxation principle for foreign corporations is that only income from
Brazilian sources is taxable in Brazil. A foreign corporation is only therefore subject
to Brazilian tax when it directly derives income from Brazilian sources. A foreign
corporation exporting goods to Brazil would not be liable for income tax on the
export income, although the resale of the merchandise inside Brazil would be a
taxable transaction under the conditions described further on under Imports.
There is no difference between income tax payable on net income earned by
Brazilian companies, whether held locally or by foreigners. There is no withholding
income tax on distributions of profits to either local or foreign shareholders.
No foreign corporation may carry out permanent activities in Brazil other than
through a registered subsidiary, branch or permanent establishment.




No income tax liability will normally arise on the sale of goods shipped to Brazil by
a foreign corporation and billed directly to the customer, provided that ownership
passes directly to the customer and provided that any local agent involved in the
sale (corporate or individual, related or unrelated) does not have the power to bind
the overseas principal contractually. If the local agent has such power, income tax
is calculated on a deemed-profit basis, based on gross income plus an additional
surcharge of 20 percent (see Sales agents or subsidiaries in Chapter 8). Any tax
assessed would be charged to and collected from the local agent.

Imports without agents

There are no tax implications.

Unrelated agents
Agents are normally entitled to commission and as such are subject to Brazilian
income tax and service tax. However, there are no tax implications for foreign

Sole or exclusive agents

The implications are the same as for unrelated agents. However, sole or exclusive
agents may not hold binding powers.

Employees/sales staff
There are no tax implications, provided that binding powers are not held.

Sales subsidiaries
Sales subsidiaries are subject to the same Brazilian taxes as any other local

Chapter 16 | Taxation of foreign corporations



Branch operations
The profits of a foreign corporations branch are taxable in the same way as those of a local
company, regardless of the branchs business objectives. They are not subject to an annual
branch withholding tax.

Income from subsidiaries

Since January 1, 1996, dividends paid out
of the subsidiaries profits to local or foreign
shareholders have not been subject to
withholding income tax.

Withholding income tax at the rate of 15
percent (25 percent, if the beneficiary is
located in a low-tax jurisdiction, as defined
under Brazilian legislation) or a lower treaty
rate (see Appendix IV), is payable on interest
that a foreign corporation may receive
from its Brazilian subsidiary. Exemption of
withholding tax may be obtained in the case
of certain types of export financing.
On December 16, 2009, Brazils Executive
Branch published Provisional Measure (PM)
472 which, among other provisions, includes
new thin capitalisation rules that can be
summarised as follows:
Interest paid or credited by a Brazilian
entity to a related party (individual or legal
entity), not resident or domiciled in a tax
haven jurisdiction or subject to a privileged
tax scheme, may only be deducted for
income tax purposes if the interest expense
is viewed as essential to the local entitys
activities and the amount of debt granted by

the related party does not exceed twice the

amount of its interest in the Brazilian entitys
net equity. A second test also needs to be
performed including the total amount of debts
with any foreign related party. If a 2:1 ratio
is exceeded under a debt/equity test, the
portion of interest related to the excess debt
will not be deductible for Brazilian income tax
Similar provisions also apply to interest
paid or credited by a Brazilian entity to an
individual or legal entity (related party or
otherwise) resident or domiciled in a tax
haven or favourable tax jurisdiction or subject
to a privileged tax scheme. In these cases,
the interest expense will only be deductible
for Brazilian income tax purposes if the
expense is viewed as necessary and the
debt amount does not exceed 30% of the
Brazilian entitys net equity. A second test
also needs to be performed including the
total debt to any foreign party resident or
domiciled in a tax haven jurisdiction. If under
either debt/equity test the 30% of net equity
threshold is exceeded, the excess interest
will not be deductible for Brazilian income tax
The two aforesaid rules also apply to
cases where a guarantor, representative
or any other intervening party is a related
party or resident of a tax haven jurisdiction



Royalties, capital gains, service/management fees, rent, etc.

Withholding income tax at the rate of 15 percent (25 percent, if the beneficiary is
located in a low-tax jurisdiction, as defined by Brazilian legislation) or a lower treaty
rate, is also payable on royalties and service fees received by a foreign corporation
from its Brazilian subsidiary.
It should also be noted that transfer pricing rules apply to the export and import
of services to or from related companies, except for operations involving royalty
Furthermore, the Brazilian entities may be subject to the Contribution for
Intervention in the Economic Domain at the rate of 10 percent (see chapter 15
Taxation of Corporations under Royalties and service fees).

Payments made to tax haven jurisdictions

Provisional Measure 472 also states that amounts directly or indirectly paid,
credited, delivered or remitted under any title to individuals or legal entities
residing in tax haven jurisdictions (as defined by Brazilian legislation) or subject
to a privileged tax scheme should not be considered deductible for income tax
and social contribution purposes, unless operational substance can be allocated
abroad (e.g. identification of the effective beneficiary of the amounts remitted, proof
of operational capacity of the individual/legal entity and gathering of documentation
related to the payment of the respective price and receipt of goods, services and
It is important to note that although PM 472 has already come into force, the
Brazilian Congress has 60 days to veto, modify, or convert the provisions into law.
If Congress does not act within this initial 60-day period, the PM expires unless it is
extended for an additional 60-day period.

Chapter 16 | Taxation of foreign corporations



Foreign portfolio investments

The direct investment of foreign capital in
the Brazilian capital market must be made
through a special foreign-investment account
under Central Bank of Brazil rules. The main
features of these funds are as follows:

IOF - Tax on Financial Transactions

- taxation on the inflow of resources
(currently 2%). Outflow of resources are
currently tax exempt.
The investment funds income is not
subject to Brazilian corporate income
tax at the fund level. Withholding income
tax may apply, depending on the type of
fund, up to 15%.

Capital gains arising from transactions

in the Brazilian exchanges and similar
markets are tax exempt (equity and
derivative funds).

Capital gains on variable-income

transactions out of the exchanges or
in variable-income funds are subject to
withholding income tax at rates varying
from 10% to 15%.

Capital gains and interest on fixed

transactions or investment funds are
subject to withholding income tax at a
rate of 15%.

Foreign investors resident in tax havens

are subject to higher taxation, as
applicable to Brazilian residents.

The rules for the formation and administration

of foreign-investment accounts are contained
in National Monetary Council Resolutions
and must be previously approved by the
Securities Commission and administered by
authorised Brazilian financial institutions. The
incoming foreign capital must be registered
at the Central Bank of Brazil.
The investment accounts are taxed in the
portfolio provided that there is no further
taxation on outbound capital.

IOF levied on other foreign transactions

IOF is a federal tax levied primarily on
transactions involving foreign exchange,
insurance, loans or financing and on
securities transactions. The applicable
rate varies depending on the transaction
(generally 0.38% - e.g. exchange operations
relating to the payment of imported services
and inflow of funds as capital contributions).
IOF is charged at the rate of 5.38% on
foreign loans, if the loan is repaid within
90 days. The rate is reduced to zero for
exchange transactions relating to the inflow
and outflow of capital in and from Brazil,
stemming from foreign loans and financing
obtained from October 23, 2008 (repaid after
an average 90 days). The 0% IOF rate also
applies to exchange transactions relating to
the inflow of revenue into Brazil deriving from
the export of goods and services.

International financial centres

There are no concessions available to foreign corporations for using Brazil as an international
financial centre.



Chapter 17

Taxation of
shareholders or

Chapter 17 | Taxation of shareholders or quotaholders


Investor considerations

Dividends or profits paid, remitted or credited to local or foreign investors are

not subject to withholding tax.

A special type of interest may be payable to shareholders or quotaholders

based on the value of a legal entitys net equity (interest on net equity) and is
subject to withholding tax (the usual rate is 15%).

Foreign-source dividend or equity income is subject to Brazilian corporate

income taxes.

Local shareholders or quotaholders

Dividends or profits
No withholding tax is payable on cash dividends or profits paid or credited to either
corporate or individual local shareholders. Brazilian resident beneficiaries are not
subject to further income tax.
Foreign-source dividend income is subject to Brazilian income tax.

Capital gains
Gains on the sale or transfer of shares or quotas are taxed at normal rates.

Foreign shareholders or quotaholders

Dividends or profits
Dividends or profits paid, remitted or credited to both corporate and individual
foreign shareholders are not subject to withholding tax.
Dividends paid out on stocks held by foreign shareholders are not subject to

Capital gains
Capital gains derived from the sale of Brazilian assets (including shares) are
subject to withholding tax, (even if both vendor and buyer are domiciled abroad)
generally at the rate of 15 percent or a lower treaty rate. The tax rate increases
to 25% if the beneficiary is domiciled or resident in a tax haven or subject to a
privileged tax scheme.




Interest on net equity

Companies can pay interest to shareholders based on their net equity interest,
subject to withholding tax generally at the rate of 15 percent or a lower treaty rate.
The tax rate increases to 25% if the beneficiary is domiciled or resident in a tax
haven or subject to a privileged tax scheme.
For details of the calculation basis and restrictions see Chapter 15.

No tax consequences arise from converting a non-incorporated business into an
incorporated entity or from changing the corporate form, such as from a limitada
(private limited-liability company) into a corporation.

Mergers or amalgamations
In the case of a merger, the new or surviving company succeeds the taxation and
labour rights and obligations of the dissolved company, although it is not entitled to
use the dissolved companys tax-loss carry forwards. For tax purposes, mergers
may be accounted for on the basis of book or market values. If accounted for at
market value, the taxable gain or tax-deductible loss is computed as follows.
Taxable gain - A taxable gain is the excess of the value at which the net assets
received are accounted for over the book value of the investment that they have
replaced. Gains earned by local investor companies as a result of the merger or
amalgamation of their local investee companies are subject to the Brazilian Income
taxes (IRPJ and CSLL) at a combined rate of 34%. Capital gains earned by nonresident shareholders due to merger and amalgamation transactions involving
Brazilian companies are subject to withholding income tax generally at the rate of
15 percent or a lower treaty rate. The tax rate increases to 25% if the beneficiary is
domiciled or resident in a tax haven or subject to a privileged tax scheme.
Provided the merger is conducted at market value, the negative difference between
the net assets received and the book value of the investment is treated as a
deductible capital loss.

Chapter 17 | Taxation of shareholders or quotaholders


The legislation permits spin-offs, split-offs or
split-ups whereby a company transfers all or
part of its net assets to one or more existing
companies or companies specifically set
up for that purpose. The tax considerations
described above for mergers or
amalgamations also apply to reorganisations.

There are no special tax rules relating to
companies in liquidation. Any net income
accruing to corporate shareholders is taxed
normally as part of taxable income. With
regard to individual shareholders, any gain
arising from the redemption of shares or
quotas is taxed as a normal capital gain. If
the owner is resident overseas, any gain
is taxed at source, generally at the rate of
15 percent or a lower treaty rate. The tax
rate increases to 25% if the beneficiary
is domiciled or resident in a tax haven or
subject to a privileged tax scheme.


Asset acquisitions
Acquisitions of assets by a foreign company
should preferably be carried out via a locally
incorporated company. The assets must be
recorded at cost and may be depreciated

Share or quota acquisitions

In general an acquisition of shares or quotas
by a Brazilian resident company would allow
the premium/goodwill paid in the acquisition
to become deductible, under certain
circumstances, following the merger of the
acquiring and the acquired company, through
either an upstream or downstream merger.



Chapter 18

Taxation of
foreign operations

Chapter 18 | Taxation of foreign operations


Investor considerations

Foreign-source profits and earnings are subject to tax in Brazil (worldwide

income taxation).

Foreign tax credits are available, subject to certain limits.

Foreign-source losses cannot be offset against Brazilian-source profits.

Taxation of foreign income

The territorial concept for corporate income tax purposes was abolished in January
1996 and corporate taxpayers are currently taxed on a worldwide income basis.
Foreign-source income/gains of any nature, net of foreign-source losses, are
subject to Brazilian income tax, when distributed or made available. Foreign tax
credits are available subject to certain limits.
Profits of overseas associated companies, when distributed or made available,
are included in the determination of taxable income of the Brazilian company
proportionately to its interest based on the financial statements prepared in the
country where the associated company is domiciled. As per the legislation in force,
the profits of overseas associated companies are considered available to the
Brazilian controlling company at the time the overseas associated company closes
its financial statements at the end of its financial year.

Double tax relief

A Brazilian corporate entity may offset income tax incurred abroad on profits,
revenue and capital gains and include it in taxable income up to the limit of the
income tax incurred in Brazil on such profits, revenue or capital gain. The income
tax to be offset is converted into Reais based on the bank selling rate on the date
the tax was paid.
Brazil has double taxation agreements with various countries. See Appendix V for
a complete listing.




Chapter 19

Consortiums and
joint ventures

Chapter 19 | Consortiums and joint ventures


Investor considerations
Among the various forms of association provided for in Brazilian legislation,
consortiums have gained in stature.
Upon introducing consortiums Brazilian commercial law intended to facilitate the
coming together of companies to leverage a certain purpose without having to
incorporate a new legal entity.
A consortium does not constitute a corporate entity and the consortium members
only undertake to observe the conditions stipulated in the respective contracts,
where each member is liable for their own obligations; there is no joint liability if no
such contractual covenant exists.

See Chapter 9 for the different types of partnerships and their common uses.

Entities or conduits
A consortium cannot be a creditor nor can it undertake obligations alone since
it is not a legal entity; only consortium members can be creditors or undertake
obligations. A consortium operates through its member companies, usually through
one only, appointed as the Leader Company.
Creditors of a consortium cannot claim full performance of obligations undertaken
by only one of the consortium members, which must be made public by being
expressly included in the contract constituting the consortium, duly registered at a
trade registry.
As mentioned above, a consortium must be constituted through a contract in
writing duly registered at a Trade Registry, containing the minimum requirements
established by Law.




Taxable income
There is no specific provision in Brazilian
legislation on consortium taxation. Since a
consortium is not a legal entity, the results of
its operations will only be taxed through the
consortium members.

Joint ventures
Entities or conduits
The concept of an unincorporated joint
venture as a separate corporate entity does
not exist in Brazil.

In this respect, each of the legal entities

participating in the consortium must
individually appropriate their revenue and
expenses and file their own separate income
tax returns.

Accordingly, the parties to an unincorporated

joint venture or consortium are taxed

However, the Federal Tax Authorities require

compulsory registration of the consortium in
the General Taxpayers Register CNPJ, for
earnings subject to withholding income tax or
earnings arising from their activities.

As stated above, parties to an unincorporated

joint venture or consortium are taxed
individually. Their tax liability is based on their
tax status and their share of the joint venture
or consortiums taxable income. Incorporated
joint ventures are taxed in the same way as
corporate entities.

Accounting records must also be centralised

in a specific book for consortiums to be
later transferred to each of the consortium
A consortium cannot be a legal entity or
undertake obligations, and is not liable for
paying the Social Contribution on Gross
Revenue PIS or the Social Contribution
on Billing COFINS. These charges are
levied on the consortium members, as the
enterprises earnings are appropriated by
each of the consortium members.

Taxable income

Taxation of foreign ventures

Foreign ventures are subject to withholding
tax at the rate applicable to foreign
shareholders (see Chapter 17).

Chapter 19 | Consortiums and joint ventures





Chapter 20

Taxation of

Chapter 20 | Taxation of individuals


Tax planning for expatriates

Resident/non-resident status
Special visas and work permits are required for any foreigner intending to live
and/or work in Brazil, whether for short or long periods. Certain types of visa may
be granted in connection with work permits, and each one has a different tax
Permanent visas are issued to foreign individuals who occupy decision-making
positions stipulated in the Bylaws/Articles of Association of a Brazilian company.
These foreigners are considered tax residents as from their arrival in Brazil and are
subject to income tax on their worldwide income.
Temporary visas for employment contracts with a Brazilian Company may be
issued to qualified individuals, including business executives who have an
employment relationship with a Brazilian company and who meet certain conditions
established by the Brazilian Authorities (experience in the field, post graduation,
justification for requiring such staff etc). These temporary visas are valid for up to 2
years and are renewable for the same period. These individuals also become tax
residents of Brazil as from their arrival in the country.
Furthermore, foreigners on renewable temporary visas without an employment
contract with a Brazilian Company, but under a technical service agreement, which
are valid for 1 year, 90 days or 30 days are considered resident, if their stay in
Brazil exceeds 183 days (consecutive or not) within any given 12-month period.
Such foreigners are not allowed to enter into any local employment agreements.
During the first 183 days of their stay in Brazil as non-residents, foreign holders of
temporary visas without an employment contract will only be taxed at source on
their Brazilian-source income. They become residents for tax purposes as from the
184th day of their stay.
There are no special tax concessions for foreigners working permanently or
temporarily in Brazil.

Pre and post-assignment periods

Any amounts payable by a non-Brazilian source to a foreigner who has not yet
acquired the status of a Brazilian resident or who has relinquished this status are
not subject to Brazilian income tax.




Job-related activities partially outside Brazil

Resident status must be considered. Worldwide income is generally subject to
Brazilian income tax for Brazilian residents.

Bonuses and fringe benefits

Bonuses and most fringe benefits provided by employers are taxable. Tax-exempt
fringe benefits include employers contributions to private social security plans and
labour claim payments, as well as specific benefits provided for in the applicable
Collective Labour Agreement.

Special foreign-assignment allowances

Any special foreign-assignment allowance paid in Brazil is subject to income tax.
Allowances paid in the employees country of origin have to be included in their
worldwide income if they have resident status.

Social security contributions

Social security contributions are payable by all persons working under a
relationship with a Brazilian company, whether as employees or holders of
decision-making positions, in accordance with the Brazilian companys Bylaws/
Articles of Association. Amounts paid to the Brazilian Social Security System are
deductible from individual taxable income.

Special tax concessions

There are no special tax concessions for foreigners working in Brazil.

Timing of arrival/departure
Since tax is due monthly, it generally makes no difference whether a foreigner
arrives or departs early or late in the year. For tax residents, income received from
Brazilian sources is withheld at source and income from foreign sources is payable
by the individual. Individuals are obliged to file an annual Income Tax Return to
adjust the tax amount paid monthly.
Specific exit procedures have to be filed and tax clearance certificates are needed
before tax residents can permanently leave Brazil.

Chapter 20 | Taxation of individuals


Territoriality and residence

The underlying principle of individual taxation is that residents are taxed on their
worldwide income and non-residents at source only on their Brazilian-source
income. The source of income is determined by the place where the income payer
is located, irrespective of where the work is performed.
Foreigners holding temporary visas with no local employment agreement are
treated as non-residents during the first 183 days (consecutive or not) of their
stay and are liable to Brazilian income tax of 25 percent withheld at source on
their Brazilian source income only. They do not have to file a tax return. From the
184th day of residence onward, or earlier if a temporary visa is converted into a
permanent visa, they become resident for tax purposes.
Foreigners arriving in Brazil on permanent visas or temporary visas with a local
employment agreement are considered residents and taxed on worldwide income
from the date of their arrival.
On departure, the foreigners (both holders of temporary visas with an employment
contract or permanent visas) should notify the tax authorities of their departure
and prepare an Individual Income Tax Return relating to the period from January
1 up to the date of departure. The income tax return for the previous tax year will
also need to be filed if this has not yet been done. At the same time a Federal Tax
Clearance Certificate should also be requested.
After filing the pertinent procedures and requesting the Certificate, the foreigners
are no longer considered resident and as of this moment all income earned in
Brazil is taxed at source at the rate of 25 percent, except for income or gains on
financial investments, which are taxed at the same rates applicable to residents.
Companies are advised to require individuals surrender their visas.
There are no special rules for Brazilians working abroad.

Special provisions
There are no special favourable provisions applicable to foreigners working in




Gross income
Gross income is the sum of earnings from
capital, labour or a combination of both,
including allowances, alimony and pensions
received in cash, gains of any other nature
and any increase in personal wealth not
supported by declared income. Income
from overseas sources is also included in
gross income. Capital gains arising from the
disposal of assets or rights of any nature and
investment income are generally considered
as part of gross income. However, in certain
circumstances certain transactions are
exempt or are taxed exclusively at source at
lower rates.
The annual income tax return is divided into
various sections, which serve to classify
income by source as follows.

Taxable income received from


Taxable income received from

individuals and overseas sources.

Exempt and non-taxable income.

Income subject to exclusive taxation.

In addition to these income-related sections,

all taxpayers with income and/or assets
above certain levels must prepare a list of
personal assets and rights, and of liabilities
at the beginning and end of each calendar
year, including those overseas.
Types of income exempt from individual
income tax include the following.

Board, transport and special work

uniforms or clothing provided free
of charge by the employer, or the
difference between the amount charged
and the market value.

Per diem allowances to cover room

and board when working outside the
county in which the company or office is
based or in which the work is normally

Labour indemnities, limited to the legal

amounts, including indemnities for workrelated accidents.

Contributions made by the employer to

private social security programmes on
behalf of employees.

Reimbursement of relocation costs when

moving to a different area at the request
of the employer.

Employee services
The definition of taxable income arising from
employee services is very broad and includes
everything that is directly or indirectly
connected with the work and/or assignment
remuneration package, including salaries,
premiums, directors fees, bonuses, tips and
other gratuities, allowances of any kind, 13th
month salaries, tax reimbursements, club
dues and company cars.
Amounts paid under net pay schemes, where
an employee receives net income with taxes
paid by the employer, are grossed up.
Stock option schemes are not covered by
individual tax legislation, but do trigger tax
implications in Brazil.
Foreign-source income is taxable, but relief
is normally given for foreign taxes paid to
foreign jurisdictions if a tax treaty exists or
reciprocal treatment is available.

Chapter 20 | Taxation of individuals



Employees profit sharing

Closely held companies

Workers have the right to share in a

companys profits, irrespective of any
remuneration received, according to a
specific labour law. Any amounts received
are not considered as consideration for
employee services and are taxed exclusively
at source.

There are no special tax rules for

shareholders/quotaholders of closely held
corporations/limitadas (private limited-liability
companies). Care must be taken to ensure
that shareholders/quotaholders transactions
are perceived to be on an arms-length basis
and therefore not deemed to be disguised
profit distributions, which would be subject
to income tax (see Non-deductible items in
Chapter 15).

Capital gains
In general, capital gains of resident
individuals are taxed at the rate of 15
percent. However, gains on sales of assets
or rights where the sale price is less than
certain thresholds (depending on the asset
or right being sold) may be exempt. The
exemptions are considered on a monthly
basis. In addition, a capital gain on the
sale of an individuals principal residence is
exempt up to a certain amount.

Other income
Royalties, professional fees, pensions,
annuities and alimony are taxable upon
receipt and should be included in gross
income. Credit is given for tax deducted at
Rent on overseas property, including a
private home, and dividends and interest
from overseas investments, should also be
included in gross income.
Amounts paid by employers for group life
insurance, medical care, meals, uniforms,
transport and per diem expense allowances
are not generally taxable for the individual.
Employers contributions to private pension
plans and savings and investment plans are
also exempt from individual income tax.
Income from short-term investments is taxed
only at source, at varying rates.

Brazilian-source income and capital gains
of non-resident individuals are subject to
withholding tax of 25 percent, except for
financial income held at bank accounts in
Brazil, which may be subject to lower rates.
Furthermore, earnings received by nonresidents, arising from the rental of real
estate located in Brazil, are subject to income
tax withheld at source at a flat rate of 15
The source of income is determined by the
place where the income payer is located,
irrespective of where the work is performed.



Deductions from the income tax calculation basis (taxable amount) should be listed
in the corresponding sections of the annual income tax return. As a general rule,
deductions are only allowed when disbursements have been made. Deductions
may be summarised as follows.

Contributions to the Brazilian Social Security System.

Medical, dental and hospital expenses.

Amounts paid to private medical schemes.

Private pension fund contributions.

Alimony payments.

Schooling expenses of dependents.

Expenses of lawsuits related to income earned.

For limitations on amounts deductible and/or deductions from the tax due see
Appendix VII.
Business expenses are not deductible.

Personal allowances
Personal allowances are deductible for each dependent. A special allowance
applies to elderly taxpayers. For deductible amounts see Appendix VII.

Non-residents do not need to prepare income tax returns. As mentioned previously,
their Brazilian-source income is taxed at source only.

Double-tax relief
Relief from double taxation is available if a tax treaty exists between Brazil and the
country from which foreign-source income is generated or if reciprocal treatment is
applicable. See Chapter 23 and Appendix V for details of tax treaties.

Chapter 20 | Taxation of individuals



Tax computation

Other taxes

Taxable income

Local taxes on income

A sample calculation of individual taxable

income is shown in Appendix VIII.

No state or municipal income taxes are

levied on individuals.

Specific filing categories exist for married

people filing jointly or separately and for
single taxpayers.

Minor amounts are payable annually to the

various unions.

Tax rates
The progressive tax rates are shown in
Appendix VI. The current maximum individual
tax rate is 27.5 percent.

Tax credits
Tax credits are available (within certain limits)
for income tax paid to countries with which
Brazil has a ratified tax treaty, or to countries
that would render reciprocal treatment in
relation to income taxes paid to the Brazilian

Wealth and inheritance taxes

There are presently no wealth or inheritance

Inheritance and gift transfer tax

The ITCMD (Imposto de Transmisso Causa
Mortis e Doao) - transfer tax is imposed at
state level at different rates.



Chapter 21

Taxation of trusts
and estates

Chapter 21 | Taxation of trusts and estates


The common-law concept of a trust does not exist in Brazil.

There is at present no inheritance tax in Brazil. The 1988 Constitution introduced
the concept of a wealth tax, although to date no legislation and/or regulations have
been issued.
As regards the estate of a deceased person, the executors are required to
file income tax returns covering the net income of the estate up to the date of
distribution of the available resources. The net income of the estate is taxable in
exactly the same way as an individuals net income (see Chapter 20).
The only other tax relating to the dissolution of a deceaseds estate is the property
transfer tax (imposto de transmisso causa mortis), which is payable by the
estate (see Chapter 22).




Chapter 22

Indirect taxes

Chapter 22 | Indirect taxes


Investor considerations

A federal value-added excise tax is payable at varying rates on nearly all sales
and transfers of industrialised products. It is also payable on most imported

Import tax is levied at varying rates on most imports.

Many payroll taxes are levied in addition to social security contributions.

Financial transactions are subject to a tax on financial transactions at varying


Companies must contribute to various federal social and welfare funds.

A state value-added sales and services tax is levied on most sales and

Service tax is levied by municipalities at varying rates.

All taxes that are complementary to income tax (taxes on occasional gains,
dividends and remittances) have been discussed in previous chapters. This
chapter refers to the more important indirect taxes that affect businesses and
individuals in Brazil. Indirect taxes are also summarised in Appendix XIII.

Federal indirect taxes

Value-added excise tax
Excise Tax - IPI (Imposto sobre Produtos Industrializados) is levied at various
rates on industrialised products when sold or transferred by the industrialising
establishment, even though industrialisation may be incomplete, partial or
intermediate. There are a few exceptions, including exports and most food
products. It is also levied on imports at the same rates as on Brazilian-made
products. All related laws and regulations were consolidated in Decree 4544/02.
The tax is payable at the point of production or import. When items are transformed
or processed, additional excise tax is payable on the finished product, but credit is
allowed for tax paid on the purchase of raw materials or component parts used for
production. Tax must also be paid on the price differential of items imported and
sold on at a higher price by the importer, and on those repackaged or reoffered for
sale at a higher price.




IPI is calculated on selling prices on an ad

valorem basis at rates that vary according
to the degree of necessity. For example,
food products in general are exempt while
cigarettes and certain other tobacco products
are taxed at over 300 percent. Normally the
rate is around 10 to 15 percent. Product
specifications can be seen in the Excise Tax
Table (TIPI).

Export taxes

Excise tax is passed on to the purchaser

as an addition to the sales price of each
item shown in the invoice (nota fiscal) and
related receipt (fatura).

The tax on financial transactions - IOF

(Imposto sobre Operaes Financeiras) is
levied at varying rates on loans and credit
operations, securities transactions, certain
foreign-exchange transactions and insurance
policies. It is added to the cost of each
transaction. This tax is also levied at varying
rates on income earned from certain shortterm financial investments, where the tax is
withheld from the investor by the financial
institution. Both companies and individuals
are subject to this tax. For further details see
Appendix XIII.

Invoices must accompany all items in transit

whether they have been sold or are merely
being transferred to another location since,
as in the case of the state value-added tax on
sales and services - ICMS (see below), each
plant or location of an entity is considered
a separate taxpaying unit. Invoices must
always indicate the amount of excise tax and
the calculation basis. For companies subject
to SPED (see chapter 13), hardcopy invoices
are replaced by soft copies.

Customs duties
Import duty - II (Imposto de Importao) is
generally levied on an ad valorem basis. For
details see Chapter 8.

Payroll taxes
Payroll Taxes in the form of social security
and other contributions are discussed in
Chapter 10. They are also summarised in
Appendix XII.

Export Tax - IE (Imposto de Exportao) is

levied on a very limited number of products
(e.g. animal fur and cigarettes) . This tax is
applied more as a foreign trade regulator
than as a revenue instrument.

Tax on financial transactions (IOF)

Rural property tax

The rural property tax - ITR (Imposto
Territorial Rural) is normally based on the
value of land and buildings assessed for this
purpose and the land area and utilisation
rates. The tax rate normally ranges from 0.03
percent to 20 percent per annum, depending
on the stage of use. Small rural properties
are exempt, if the owner or the owners
family cultivates the land.

Chapter 22 | Indirect taxes


Corporate social contribution

Except for non-profit entities legally qualified
as social assistance entities, all companies
must make monthly/quarterly contributions
(contribuio social) at the rate of 9 percent
on each month or quarters profit (depending
on the taxation scheme) before income
tax, after allowing for certain adjustments.
Negative contribution bases may be carried
forward for offsetting purposes indefinitely.
However, this offsetting is limited to 30%
of the contribution basis. Contributions are
not deductible for income tax purposes.
The federal government applies resources
obtained in the Social Welfare System.

Social contribution on billing

All companies, except non-profit entities and
those not subject to corporate taxation on the
taxable income basis (lucro real), must make
monthly contributions to this federal social
financing scheme (Contribuio Social
para Financiamento de Seguridade Social COFINS) at the rate of 7.6 percent on gross
monthly revenue after certain deductions and
exclusions. However, it is possible to offset
certain credits on consumables and some
other expenses, according to the applicable
legislation. Companies subject to a basis
other than the taxable income basis are
subject to a lower rate of 3 percent, but
cannot deduct credits. Resources are used
to finance social security expenses in the
areas of health, social welfare and social
COFINS is also levied at 7.6 percent on
the import of goods and services. Credits
calculated on the COFINS Import paid, and
on expenses related to the import of goods
and services, according to the applicable
legislation, may be offset against the
COFINS due on monthly gross revenue.


Additionaly, diferent tax rates apply for

certain products which levy occurs only once
in the supply chain.

Social integration program

All companies, except those not subject to
the taxable income basis (lucro real), must
make monthly contributions to this federal
program (Programa de Integrao Social
- PIS) at the rate of 1.65 percent of gross
monthly revenue after certain deductions and
exclusions. However, it is possible to offset
certain credits on consumables and some
other expenses, according to the applicable
legislation. Companies subject to a basis
other than the taxable income basis are
subject to a lower rate of 0.65 percent, but
cannot deduct credits on consumables.
Contributions are used to create a fund
for employees that can be used at the
time of marriage, retirement, incapacity, or
purchase a home, to an extent depending
on the employees salary level and length of
service. Income from the fund attributable to
each employee may be withdrawn annually,
provided that the beneficiary has been
registered as an employee for over five
PIS is also levied at 1.65 percent on the
import of goods and services. Credits
calculated on the PIS Import paid, and
on expenses related to the import of goods
and services, according to the applicable
legislation, may be offset against the PIS due
on monthly gross revenue.
Additionaly, diferent tax rates apply for
certain products which levy occurs only once
in the supply chain.



State indirect taxes

Valued-added tax on sales and services
Sales and services tax - ICMS (Imposto sobre Circulao de Mercadorias e
Servios) is levied on sales or the physical movement of goods, on freight,
transport and communications services, and on electricity, normally at the rate
of 18 or 19 percent for intrastate transactions and 7 to 12 percent for interstate
transactions. In some states certain products are exempt, including food products.
This tax is also payable on almost all imports at 7 to 25 percent but most exports
are exempt. Each location of a business operation is considered as a separate
taxpaying unit. The total tax assessed must be shown separately on the invoice
(nota fiscal), but is considered an integral part of the sale or transfer amount
of each item listed in the invoice. Tax is calculated on monthly operations and
payment is due according to the companys activity code. Payments are generally
made the following month.
The regulations contain many requirements for documenting and recording the
movement of goods for the purpose of controlling this tax. Heavy penalties are
imposed for failure to comply with the regulations.

Property tax
A property transfer tax - ITCMD (Imposto de Transmisso Causa Mortis e
Doaes) is normally payable at a rate of up to 4 percent on inheritances and
donations of real estate properties and rights.

Tax on Vehicles
The state tax on the ownership of vehicles IPVA - is payable on a yearly basis
on all kinds of vehicles, including motor boats and airplanes. The amount payable
is based on the market value of the vehicle at the beginning of each year, when

Chapter 22 | Indirect taxes


Municipal indirect taxes

Service tax
A service tax - ISS (Imposto sobre Servios) is normally levied on services
rendered, except for those related to freight, certain transport and communications
services and electricity, which are subject to the ICMS tax commented on
previously. Rates vary from 2 percent up to the maximum rate of 5 percent, (which
is more frequently applied), depending on the municipality. It is payable on a
monthly basis and is not a VAT tax. For certain professional firms or individuals,
these rates are substituted by an annual contribution based on the number of
practicing professionals.
ISS is also levied on payments for remuneration of services rendered from abroad
(import of services).

Property taxes
A property tax - IPTU (Imposto Predial e Territorial Urbano) is levied annually
based on the fair market value of property in urban areas at rates that generally
vary between 0.2 to 5 percent according to the municipality and location of the
property. Payments can be made in up to 10 monthly instalments. In a few cases it
is possible to obtain exemption from this tax.
Another property tax - ITBI (Imposto de Transmisso de Bens Imveis Inter
Vivos) is levied at rates of up to 6 percent on sales or transfers of properties and
is payable by the acquirer. A reduced rate of 0.5 percent applies to transactions
under housing programmes financed by federal government schemes.
Transfers of properties to a corporate entity as a capital subscription are exempt
except where the business activity is real estate.




Chapter 23

Tax treaties

Chapter 23 | Tax treaties


Tax treaty policy

Brazil has ratified a number of tax treaties to accomplish the following objectives:

Income derived from Brazil should be subject to Brazilian income tax only and
thus an exemption or foreign tax credit should be granted by the other country.

The effects of reducing Brazilian taxes should not be compensated by

increasing taxes in the other country.

The establishment of maximum levels of taxation for income deriving from

Brazilian sources.

The reduction of foreign taxes on profits earned abroad by Brazilian


In general, the double-tax treaties cover only corporate and individual income
tax and remittance taxes and do not affect the payment of capital gains tax (i.e.
the treaties do not provide relief as they generally state that capital gains may be
taxable in both countries).
Fiscal residence is usually determined in accordance with the tax law prevailing
in the country in which an establishment is located. Normally, double-tax treaties
contain special provisions for determining the residence of individuals who would
otherwise have dual residence. This determination is generally based on the
personal and economic interests of the individual.
Brazil is not actively pursuing a wide network of double-tax treaties. Treaties
currently in force and those under negotiation are listed in Appendix V. Most
treaties follow the OECD model.

Withholding taxes
The withholding tax on dividends was reduced from 15 percent to zero for profits
generated from January 1996. The rate for remittances of interest and royalties
was also reduced from 25 percent to 15 percent in January 1996. Treaty rates in
excess of 15 percent are automatically reduced.




Permanent establishment
A branch is considered to be a permanent establishment, as is an agent who has
powers to bind an overseas principal contractually (see Chapter 8).
Each double-tax treaty should be consulted for further definition of a permanent

Other articles
There are no special tax treaty benefits for industrial and commercial income.
Earnings from properties are generally subject to the tax regulations of the country
where they are located.
Shipping and aircraft transport companies are normally taxed only in the country
where their head offices are located.

Elimination of double taxation

Each double-tax treaty should be consulted to determine the method of eliminating
double taxation, tax credit or exemption.

Exchange of information
Although double-tax treaties provide for an exchange of information on a
confidential basis, this does not include disclosure of any trade, business,
commercial, industrial or professional secrets.

Competent authority/Mutual agreement

Any case arising in relation to a double-tax treaty may be submitted to the
competent authorities of the country in which the taxpayer is resident. If no
satisfactory solution is reached, the competent authorities of both countries will try
to settle the case by agreement in order to maintain the spirit of the treaty.

Chapter 23 | Tax treaties






Appendix I

Corporate income
tax & Social
contribution rates


Rates applicable to taxable income (2010).

Income tax rate

Surcharge on taxable income in excess of R$ 240,000


Social contribution (see note 2)

1. Income tax and social contribution payments can be made on a monthly
or quarterly basis. As a general rule, the annual income tax return (DIPJ)
for the previous calendar year is prepared by the last business day of
June of the following year and submitted to the authorities, whereupon
any further payable or refundable tax is settled. However, monthly
payments may also be final.
2. In addition to corporate income tax, all legal entities are subject to a
social contribution to the federal government at the rate of 9% (except for
insurance and financial institutions, subject to a 15% rate), which is not
deductible for corporate income tax purposes. The tax basis is the profit
before income tax, after certain adjustments.
3. Accordingly, the current maximum consolidated effective tax rate on
taxable income is 34%.
4. The official exchange rate at October 16, 2009 (the deadline for delivery
to the tax authorities of the DIPJ relating to the 2008 calendar-year) was
USD 1= R$ 1.71.




Appendix II

Tax depreciation


Type of asset

per annum

Buildings - industrial, office and warehouses

Building improvements

Machinery and installations, air-conditioning,

lifts and equipment


Tools and moulds


Computer hardware


Office installations


Office furniture and fittings


Automobiles and lorries


Aircraft, including engines



1. Rates are applied on the straight-line basis.

2. Rates for machinery and installations, air-conditioning, lifts and equipment
are for an 8-hour working shift per day. For double shifts the rates can be
increased by 50 percent and for triple shifts by 100 percent.
3. Rates may be decreased or increased if the taxpayer can prove that the asset
concerned has a correspondingly longer or shorter life.
4. Leasehold improvements are normally depreciated over the period of the
Further regulation on this subject is expected in view of the new Brazilian
accounting standards introduced by the new Corporate Law and other related
provisions. Please see Chapter 12 for further information.




Appendix III

Corporate tax


Year ending December 31, 2009


Net income before income tax and social contributions


Less: Dividends received (Note 2)

Net taxable income


Tax thereon:
Basic income tax at 15%
Surcharge: 10% from 240,000 to 10,800,000
Total federal income tax


The social contribution calculation is as follows.


Net taxable income
Social contribution at 9% (Note 3)


1. Dividends received from other Brazilian companies, including affiliated
companies, are not subject to withholding income tax and are excluded from
the income tax calculation.
2. The income tax/social contribution may be computed in three different ways,
as follows:
a. On a presumed taxable income basis:
Only corporate taxpayers with gross annual revenue of under R$ 48 million in the
preceding year may opt for this income tax computation method. The income tax
rate of 25% is imposed on a percentage of gross monthly revenue (from the sale
of goods/products/services) plus capital gains and money-market income, less
some minor adjustments such as unconditional discounts and cancelled sales.
The taxable basis for other diversified activities is determined according to the
proportionate amount of gross revenue.




Taxable basis as a percentage of gross monthly revenue

Type of activity

In general


Oil, gas, lubricants etc. (retail)


Transport (except cargo)


Services in general


The social contribution liability, at the rate of 9%, presumes a taxable basis corresponding to
the sum of: (i) the amount equal to 12% of gross monthly revenue (32% for services) and (ii)
capital gains and money-market income.
b. On an arbitrary basis
Established solely at the discretion of the tax authorities, should the taxpayer fail to comply
with the regulations for keeping records and/or computing taxable income.
c. On an actual taxable income basis
This basis is computed in accordance with the corporate records and adjusted for
tax purposes in line with the applicable regulations. Legal entities with the following
characteristics/activities must use this method:

Annual gross revenue in the preceding

calendar year of more than
R$48 million

iv. Legal entities benefiting from income tax

incentives (reduction or


Financial institutions in general, leasing

companies, insurance companies and
non-private pension funds


iii. Legal entities that have profits, income

or capital gains from abroad

Legal entities that have made the

monthly payments on an estimated
basis during the tax year;

vi. Legal entities that render services

related to credit and market assistance,
credit management, risks and selection,
management of receivables, and
payables assistance or factoring.


These corporate taxpayers estimate their monthly tax payments (income tax and
social contribution) by using the computation rules applicable for the presumed
taxable income basis. Payments are due on the last working day of the following
month. A final balance sheet and statement of income must be drawn up at yearend and the annual tax liability (including the income tax surcharge) computed.
At this time, nominal money-market gains as well as gains on transactions in the
stock/commodities exchanges and/or futures markets must be considered; taxes
withheld at source are treated as tax credits. Any difference between the final tax
liability computed at year-end and the amounts estimated and paid in advance
or withheld at source will either be paid up to the last working day of the month
of March (subject to interest) or claimed as a tax credit. The taxpayer may at any
time suspend or reduce the monthly advance payments upon proof that amounts
already paid or withheld at source exceed the amount due on actual taxable
income for the same period.
Alternatively, the above corporate taxpayers may draw up quarterly financial
statements, calculate the appropriate taxable income and pay the income tax
(including surcharges) and the social contribution thereon by the last working day
of the following month. Taxes paid under this alternative are considered final, and
the annual financial statements are not required for tax purposes.
The official exchange rate at October 16, 2009 (the deadline for submitting the
DIPJ for 2008 to the tax authorities) was USD 1 = R$ 1.71.
3. Except for insurance and financial institutions, subject to a 15% rate.
4. As mentioned in Chapter 13, taxpayers which opted for the Transitional Tax
Scheme (Regime Tributrio de Transio RTT) for 2008 and 2009 (the
scheme is mandatory from FY 2010) must adjust their income tax and social
contribution taxable basis as to avoid any adverse tax consequences deriving
from the new Brazilian accounting standards implemented from FY 2008.




Appendix IV




Payments of dividends, interest and royalties are subject to withholding income tax at the
following rates.






Nil Progressive Rate Progressive Rate

Non-resident companies and individuals:

Nontreaty (non tax haven)
Tax Haven



15, 10
15, 10
15, 10
15, 10
25, 15
15, 10
15, 10
25, 15
15, 10
15, 10
15, 10
15, 10
15, 10

15, 10
15, 10
15, 10
15, 10
15, 10
15, 10
15, 10
15, 10
15, 10
15, 10
15, 10

Treaty (Note 1):

China, P.R.
Czech Republic
Korea, Republic
Russia (Note 2)
South Africa

25, 15, 10
20, 15, 10
25, 15
25, 15
25, 15
25, 15
25, 15
25, 15, 10
25, 15, 10
25, 15
25, 15
15, 10
25, 15
25, 15,12.5
25, 15, 10
25, 15
15, 10
25, 15
25, 15
25, 15}
25, 15
15, 10
15, 10



In addition, tax is withheld from other payments as follows.

Repatriated capital in excess of registered amount (Note 3)


Gains on sale or transfer of shareholdings by foreign shareholders

or assets located in Brazil (Note 3)


1. Treaty rates in excess of those for nontreaty countries are automatically reduced. As can
be seen, dividends paid are not subject to any withholding tax.
2. The double-tax treaty (DTT) between Russia and Brazil is still pending ratification.
3. In the case of residents in tax havens the capital-gains tax rate is increased to 25%.





Appendix V

Tax treaties


Treaties in effect

Date of treaty

In force since

China P.R.
Czech Republic
Korea, Republic of
South Africa





The Tax Treaties with Paraguay and Russia, although already signed, are not yet
in force.
The provisions included in the tax treaties are normally effective in each signatory
country as from the first day of January of the following year.




Treaties limited to airlines

Brazil is a signatory to the 1944 Convention on International Civil Aviation.
Treaties under negotiation
Treaties are under negotiation with the following countries:
United Kingdom
Trinidad and Tobago

United States

Social security totalisation agreements

Agreements have been signed with the following countries.
Cape Verde






Appendix VI

Individual tax


The following tax table is applicable to income tax payable in 2010.

Net taxable income (1)

Amount to be

deducted from
Not over
Tax rate (2)%
(1) times (2)
R$ 17,989.81
R$ 26,961.01
R$ 35,948.41
R$ 44,918.28

R$ 17,989.80
R$ 26,961.00
R$ 35,948.40
R$ 44,918.28


R$ 1,349.16
R$ 3,371.28
R$ 6,067.44
R$ 8,313.36

1. These rates apply to all types of tax returns, i.e. married individuals filing
jointly or separately and single taxpayers.
2. An individual who receives income in any month from a source other than an
employer must prepare a compulsory monthly tax computation (carn leo)
and pay any tax due by the last working day of the following month.
3. At December 31, 2009 the official exchange rate was USD 1 = R$ 1.74.




Appendix VII

allowances and


A taxpayer may deduct a flat allowance of R$ 1,808.28 per annum per dependent
in 2010.
A further allowance of up to R$ 17,989.80 may also be taken relating to annual
income from retirement or military pensions as from the year in which the taxpayer
reaches 65 years of age.

The following may be deducted from taxable income.

Contributions to the Brazilian Social Security System.

Medical, dental and hospital expenses that are not covered by an insurance
policy or subject to refund by any entity (with no limits).

Amounts paid to recognised Brazilian health insurance/medical cost coverage

plans (with no limits).

Contributions to recognised Brazilian private pension funds (limited to 12% of

the individuals annual income).

Alimony payments based on a court order or other legal agreement.

Schooling expenses up to an annual limit of R$ 2.830.84 per student.

Business expenses are not deductible.

All individuals can elect to file a simplified tax return and take the benefit of the
standard deduction, equal to 20% of the gross income, but limited to R$ 13,317.09,
which substitutes all other deductions.
The taxpayers may also deduct from the tax due and not from the taxable income,
the following:

Donations made to official government, state and/or municipal childcare


Certain qualified contributions to cultural and sports projects.

Investments in audiovisual activities.

Note, however, that those deductions are limited to 6% of the tax due.

Contributions made by the taxpayers to the official social security system on

behalf of registered employees within certain limits.




Appendix VIII

Individual tax


Resident, married with two children, wife takes classes, pays alimony to first
Income, gains and deductible expenses in 2010 were as follows.

Brazilian-source salary income
Foreign-source income
Short-term money-market income - Brazilian source
Capital gain - Profit on sale of property


Social security contributions
Medical expenses
Alimony payments
Schooling expenses


Income tax withheld at source (Brazil)

Brazilian payroll withholding tax


Income tax paid abroad

Income tax paid to a foreign tax jurisdiction on foreign-source income


Withholding tax on short-term money-market income


Income tax on capital gain





Tax computation on return


Brazilian-source salary income
Foreign-source income
Short-term money-market income - Brazilian source
Capital gain - Profit on sale of property
Gross income


Less - Income taxed at source only:

Short-term money-market income
Capital gain subject to special taxation (Note 1)
Net taxable income before allowances and deductions


Less - Allowances and deductions:
Social security contributions
Dependents (three)
Medical expenses
Alimony payments
Schooling expenses (for three)
Net taxable income


Income Tax Calculation

Income tax at 27.5%
Less - Amount deductible relating to lower tax brackets



Less - Tax paid at source:

On Brazilian-source salary income
On foreign-source income
Refund (Note 2)



1. Capital gains are taxed at source only at the rate of 15%, payable by the
taxpayer by the last working day of the following month.
2. Any tax due is payable in full at the time of filing or, at the taxpayers
discretion, in up to six instalments as from April 30. Each instalment may not
be less than R$ 50 and if the amount due is less than R$ 100 it should be paid
in a single instalment.
3. The official exchange rate in December 2009 was USD 1 = R$ 1.74.




Appendix IX

Tax on foreigners
working in Brazil


Individuals entering the country on temporary work visas under an employment

contract with a company incorporated in Brazil are considered tax resident from
their arrival. Foreign and Brazilian earnings are therefore taxed, as of that date, in
accordance with the progressive tax rates.
Individuals entering the country on other temporary visas are considered tax
resident of Brazil after completing a stay of 183 days in the country within any
given period of 12 months. From the 184th day, the individuals are considered
resident and taxed on their worldwide income. Foreign and Brazilian earnings are
therefore taxed in accordance with the progressive tax rates. During the nonresidency period, only Brazilian source income is subject to taxation at a flat tax
rate of 25%.
It should be noted that the 183 days do not necessarily have to be consecutive.
The 12-month period can commence from the date of any entry into the country.
The residency taxation rules are applied as of the 184th day of a foreigners stay.
There is no income tax filing obligation for the period of non-residency.




Appendix X

Wealth tax


Wealth tax is not yet applicable in Brazil. The 1988 Federal Constitution refers to a
wealth tax to be imposed, but regulations have not yet been issued.




Appendix XI

inheritance and
gift tax rates


The income arising from the estate of a deceased person and up to the final
distribution of the estate is subject to income tax at the same rates for individuals
(see Appendix VI).
For inheritance and gift taxes please see Chapter 21.




Appendix XII

FGTS, social
contributions and


FGTS deposits
The employer is obliged to make monthly deposits in the employees name in
government blocked accounts, equivalent to 8% of the remuneration paid. This
contribution is a labour right, denominated the Employee Severance Indemnity
Fund FGTS.

Social Security contributions

Employers contributions

20% of the employees monthly remuneration

Employers are also subject to the following contributions:

Education fund
Work-related accident insurance - maximum (1)

of employees

SESI/SESC Social programs


SENAI/SENAC Training programmes (2)


SEBRAE Program for small companies


INCRA Supplementary rural pension







The contributions listed above vary according to the activity performed by each
company, except for FGTS, which is a mandatory payment made on behalf of all
employees, irrespective of activity.
1. The contribution related to Occupational Environmental Risks (RAT) varies
from 0.5% to 5.25% of gross payroll depending on the intensity of risk
existent in the workplace. As from Jan/10, companies were given a factor
according to the number of work-related accidents registered (prior to 2010,
companies with the same activity paid the same rate as work-related accident
insurance). The factor calculated by the Social Security Authorities for each
company individually varies from 0.5 to 1.75 (as from 2011 it will vary up to
2.0) and must be multiplied by the work accident rate (determined according
to the economic activity of the company, which varies from 1% to 3%).
The maximum amount to be paid as work accident insurance in 2010 may
therefore be as high as 5.25%.
2. Applicable to industrial and commercial companies only.
3. All contributions are deductible for corporate income tax purposes.
Employees contribution

From - R$
To - R$




Ceiling: R$ 375.82
1. Contributions are deducted from employees monthly remuneration.
2. Contributions are deductible for individual income tax purposes.
3. The salary base for contributions is adjusted annually according to minimum
wage restatements.


Social security benefits



Old age:

180 months of contribution and 65 years of age

180 months of contribution and 60 years of age

Period of service

35 years of contribution
30 years of contribution


12 months of contribution

The monthly pension varies according to the size of the contributions made. The
maximum amount is R$ 3,416.54. There is a minimum contribution period for
pensions for individuals disabled due to accidents.

Sickness benefit and accident insurance benefit

The maximum amounts payable for each of these benefits is also R$ 3,416.54 per

Unemployment benefit
The unemployment benefit is paid by the government and can reach the maximum
of R$ 954.21 per month. To receive this benefit, the unemployed individual must
fulfil certain conditions determined by the legislation and they will only receive it for
a period of three to five months.
1. All benefits are adjusted annually.
2. On February 1, 2010 the official exchange rate was USD 1 = R$ 1.85.
3. The employment benefit is strictly connected to the minimum wage variation.
Therefore, any change in its value is reflected in the benefit value.




Appendix XIII

Indirect taxes


Excise tax (IPI)
This federal value-added tax is levied at varying rates on nearly all sales and
transfers of products industrialised in or imported into Brazil, depending on the
degree of necessity. Industrialisation may be incomplete, partial or intermediate.
Examples of average rates for various products and groups of products are as

Food in general
Soft drinks
Alcoholic drinks
Plastic and rubber
Textile materials
Machinery and equipment
Precision instruments


Exports are exempt. Imports are normally taxed at the same rate as Brazilianmade products. Rates are changed frequently and vary depending on the product.

Customs duties (II)

Customs duties are levied on foreign goods upon entry into Brazilian territory.
Rates vary in accordance with product specifications listed in the Common
External Tariff (TEC). Exemptions or reductions may be granted temporarily. For
further details see Chapter 8.

Payroll taxes
These taxes are summarised in Appendix XII above.




Tax on financial transactions (IOF)

This tax is levied at various rates, which may be summarised as follows.

Loans and credit operations
Insurance policies
Incoming loans repayable in foreign currency in less than 90 days
Incoming resources for application in fixed-income funds
Incoming loans for periods longer than 90 days

0 to 7.38
0 to 1

Rates may be changed at any time, via Federal Decree.

Rural property tax (ITR)

Taxation at the minimum rate of 0.03% per annum on appraised property values
but can be increased to up to 20%, depending on the degree of utilisation and
exploration and the total area of the property.

Social contribution on billing (COFINS)

This monthly contribution, in its noncumulative basis, is levied at the rate of 7.6%
on corporate gross revenue after certain deductions and exclusions. However, it
is possible to offset credits calculated on certain consumables against tax due. As
from August 2004, financial income is not subject to this contribution. Companies
not subject to the noncumulative basis are levied at the rate of 3% and may not
deduct credits.
Special schemes are provided for certain business, such as the pharmaceutical,
automobile and tyres industry, petroleum and its derivatives and beverages, which
are subject to different rates.
See an example COFINS calculation under PIS below.

Social Integration Program (PIS)

This monthly contribution, in its noncumulative basis, is levied at the rate of
1.65% on corporate gross revenue, including financial income, and after certain
deductions and exclusions. However, it is possible to offset credits calculated on
certain consumables to reduce tax due. As from August 2004, financial income is
not subject to this contribution. Companies not subject to the noncumulative basis
are levied at the rate of 0.65% and may not deduct credits.


Special schemes are provided for certain business, such as the pharmaceutical,
automobile and tyres industry, petroleum and its derivatives and beverages, which
are subject to different rates.
PIS and COFINS calculation example:
Revenue and Expenses
Internal sales revenue
Export revenue
Financial income
Raw material acquisition
Equipment leasing expenses
Depreciation (1)


Tax computation
Tax calculation basis
Internal sales revenue
Export revenue
Financial income
Export revenue
Financial income
Tax calculation basis

Tax due before discount




Credits calculation
Raw material acquisition
Equipment leasing expenses
Depreciation (1)
Deduction calculation basis


Credit to be deducted
Tax to be paid










Sales and Services Tax (ICMS)

Service tax (ISS)

This state valued-added tax is levied on

sales or physical movement of goods;
on freight, transport and communication
services; and on electricity, as follows.

Rates vary from 2% to 5%. The rates listed

are more common for services rendered in
larger cities.

Intrastate transactions

up to 25

Interstate transactions

7 to 12

Most imports

up to 25

In some states certain products are tax

exempt, including foodstuffs. Exports are
also exempt. The lower interstate rates are
normally charged on transfers to smaller,
less-developed states.

Hospitals, schools, colleges

Civil construction,


Tourism sector

Specified entertainment activities

Other services

Property tax (IPTU)

Transfer tax Inheritance and Gift


This annual tax amounts to between 0.2%

and 5% of appraised fair property values.

A property transfer tax is normally payable

at a rate of up to 4% on inheritances and
donations of properties and rights.

Tax on sale or transfer of properties

A property transfer tax of up to 6% is payable
by the acquirer on sales or transfers of real





Appendix XIV

Setting up
in Brazil - A



This checklist illustrates points that investors and their advisers should consider when
contemplating setting up a business enterprise in Brazil.

I. Investor considerations
Market - Existing and potential

Capital structure

Existing and potential market for goods

or services.

Nature of business and minimum

capitalisation requirements.


Import of capital.

Market surveys.

Foreign-equity limitation.

Patent, trademark and design protection.

License to trade (some sectors only).

Possibility of raising capital from local



Availability of financing - Local/foreign


Industrial standards.

Repatriation of interest and principal of

foreign-source loans.

Bank financing.

Equity issues.

Injection of cash from parent or holding


Government assistance.

Form of entity to incorporate a


Other forms of financing (debentures/

share issuances).

Corporation (sociedade por aes).

Lease or purchase of assets.

Private limited-liability company


Debt/equity ratio.


Tax implications.


Obtain advice from bankers, attorneys

and accountants.

Joint venture (incorporating a company

with one of the corporate forms
mentioned above).

Preparation of a business plan

Determination of overall strategy.

Financial projections, including cash


Assistance from professional advisers.

(See Appendix XV for details)





Market and labour factors.

Transport facilities.

Availability of tax/nontax incentive

development areas/enterprise zones.

Tax implications - Federal, state and



Management - Availability and


Legal requirements.

Skills required.

Compensation levels.

Availability locally; recruitment.

Possibility of bringing own overseas


Limitations on expatriate staff - Number

and compensation.

Executive recruitment services.

Pension and other retirement


Type needed.

Own or leased.

Current requirements.

Expansion possible.

Visa requirements.



International schools for children of

expatriate staff.

Health and safety regulations (licenses).

Tax aspects.

Planning restrictions.

Labour - Availability and compensation

Restrictions on ownership of buildings,


Types of employee engagement.

Numbers and types needed.

Compensation levels.

Terms of employment.

Work permits.


Employee benefits/pensions.

Payroll taxes and social security costs.

Training programs.


Government assistance, grants.

Approvals required.

Tax implications.



Production capabilities

Incorporation procedures

Capacity - Current and projected.

Capital commitments - Initial and


Appointment of professional advisers Attorneys, accountants, tax advisers and


Raw materials - Sources, availability,

customs duties.


Ordering stationery/design of logo.

Technology available.

Import restrictions.

Corporate secretarial and administrative


Projected costs - Overall and unit.

Selling the product

II. Legal considerations

Approval of foreign investment by

government authorities.

Promotion methods.

Selection of advertising and/or public

relations firms.

Documentation and registration

requirements for type of entity selected.

Permits and licenses required.

Market campaigns.

Company name.

Sales force.


Statutory operating and audit


Exhibitions and trade shows.

Conduct of the entity.

Pricing policies.

Business contracts and agreements.

Exporting process.

Employment contracts.

Sales tax, excise tax and indirect tax


Property evaluation and documentation.

Existence of sales price controls.

Business, banking and industrial


Tax implications.

Projected costs.



III. Accountancy considerations

Evaluation of industry/feasibility study.

Tax planning.

Requirements for tax purposes.

Profit planning for initial years.

Accelerated depreciation.

Management control systems (i.e. financial management systems, employee

records, inventory control).

Financing requirements.

Bookkeeping requirements.

Use of computers.

Financial statement preparation.

Management consulting.

Help from auditors.






Appendix XV

Structuring an
in Brazil - A


This checklist illustrates the points that investors and their advisers should consider
when deciding the form of business entity by which to operate.

I. Corporations (sociedade por aes)

Investor considerations

Rules and limitations for foreign ownership/shareholders.

Number of founding shareholders required, including local shareholders, and

voting limitations.

Advantages/disadvantages of corporations.

Availability of local funding, including equity issuances.

Capital payment.

Degree to which capital must be imported.

Extent of powers to be given to the executive officers/board of directors.

Requirements as to local and/or labour representation on board of directors.

Repatriation of capital and profits.

Publishing of corporate documents.

Legal considerations

Organisation and incorporation requirements.

Registration requirements.


Management structure.

Residency and representation of foreign shareholders/members of the board

of directors.

Accountancy considerations

Tax advantages of corporations.

Tax planning opportunities to minimise tax.




II. Private limited-liability companies

(limitada) and partnerships

III. Branches
Investor considerations

Investor considerations

Limitations on foreign interests.

Rules and limitations on foreign


Advantages/disadvantages of branches.

Requirement for residency (or legal

representation) of quotaholders/

Capital requirements.

Costs and exposure of publishing

financial statements.

Advantages/disadvantages of

Repatriation of capital and profits.

Repatriation of capital and profits.

Legal considerations

Legal considerations

Incorporation requirements.

Capital to be assigned to the branch for

legal purposes.

Incorporation requirements.

Registration requirements.

Registration requirements.


Management structure.

Permanent legal representative


Residency and representation of


Accountancy considerations

Taxed as conduit or entity.

Tax planning opportunities to minimise


Accountancy considerations

Taxation of a branch.

Taxation of profits, whether or not


Taxation of reinvested profits.

Tax planning opportunities to minimise



IV. Joint ventures

Investor considerations

Government and local authorities view of joint ventures.

Emphasis on foreign participation in joint ventures.

Advantages/disadvantages of joint ventures.

Legal considerations

Incorporation requirements.

Registration requirements.


Accountancy considerations

Taxed as conduit or entity.

Tax planning opportunities to minimise tax.


The PricewaterhouseCoopers ofices in Brazil are located at the

following addresses:
So Paulo - SP
Av. Francisco Matarazzo, 1400
05001-903 - So Paulo/SP
Torre Torino - gua Branca
Telephone: (55-11) 3674-2000
Belo Horizonte - MG
Rua dos Inconfidentes, 1190 - 9
30140-120 - Belo Horizonte/MG
Telephone: (55-31) 3269-1500
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Braslia - DF
SHS - Quadra 6 - Conjunto A - Bloco C
Edifcio Business Center Tower
Salas 801 a 811
70322-915 - Braslia/DF
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Campinas - SP
Edifcio Hannover Tower
Av. Jos de Souza Campos, 243 10
13025-320 - Campinas/SP
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Facsimile: (55-19) 3794-5454

Recife - PE
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Rua Padre Carapuceiro, 733 - 8
51020-280 - Recife/PE
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Ribeiro Preto - SP
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Rio de Janeiro - RJ
Rua da Candelria, 65 - Centro
20091-020 - Rio de Janeiro/RJ
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Caxias do Sul - RS
Rua Os 18 do Forte, 1256 - Sala 11
95020-471 - Caxias do Sul/RS
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Salvador - BA
Edifcio Citibank
Rua Miguel Calmon, 555 - 9
40015-010 - Salvador/BA
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Curitiba - PR
Curitiba Trade Center
Alameda Dr. Carlos de Carvalho, 417 - 10
80410-180 - Curitiba/PR
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So Jos dos Campos - SP

Rua Euclides Miragaia, 433
Cjs. 301 e 304
12245-550 - So Jos dos Campos/SP
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Facsimile: (55-12) 3942-3329

Joinville - SC
Rua Alexandre Dhler, 129 - 6
Salas 605, 606 e 607
89201-260 - Joinville/SC
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Facsimile: (55-47) 3422-6771

Sorocaba - SP
Edifcio Trade Tower
Rua Riachuelo, 460 - 5
Salas 501, 502, 503 e 504
18035-330 - Sorocaba/SP
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Facsimile: (55-15) 3332-8076

Manaus - AM
Av. Djalma Batista 3.694
Centro Empresarial Art Center
Bloco 01, Loja 05
69050-010 - Manaus/AM
Telephone: (55-92) 3236-8873
Facsimile: (55-92) 3634-5080
Porto Alegre - RS
Edifcio Madison Center
Rua Mostardeiro, 800 8 e 9
90430-000 - Porto Alegre/RS
Telephone: (55-51) 3378-1700
Facsimile: (55-51) 3328-1609

Vitria - ES
Edifcio Century Towers - Torre B
Av. Nossa Senhora da Penha, 699
Cjs. 801 and 802
29055-131 - Vitria/ES
Telephone: (55-27) 3200-3139
Facsimile: (55-27) 3324-3239

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